Technology holds vast potential for making life better, more fair, and easier, but it can also be weaponized. The same is true of the United States International Trade Commission (ITC).
Swedish tech giant Ericsson recently filed suit against Samsung, the South Korean tech giant that has mounted a serious challenge to Apple’s supremacy in the smartphone market. In a complaint filed with the ITC on January 4th, 2021, and in a similar lawsuit filed in a U.S. District Court in Texas on New Year’s Day, Ericsson claims that after failing to negotiate a renewal of a broad patent cross-license between the parties, Samsung is now infringing patents related to wireless devices and products.
Ericsson is asking the ITC to impose an import ban on certain Samsung products, including smartphones and tablets, meaning the flow of Samsung devices to clients like Verizon, T-Mobile and AT&T consumers could stop abruptly. Under Section 337 of the Tariff Act of 1930, the ITC can’t make Samsung pay damages, but it can grant an “exclusion order” that keeps imported products out of the U.S. market – a far more drastic remedy.
This isn’t the first time that Ericsson has tried to tie up Samsung. At the expiration of the last patent cross-license in 2012, Ericsson sued Samsung over patent issues, ultimately extracting a $650 million settlement plus royalty payments. Ericsson repeated this pattern in 2015 with Apple. The pattern seems clear: when a license is due to renew as part of a patent cross-license agreement for 5G technologies with Ericsson, the Swedish giant advances litigation to gain negotiating leverage.
Consider the consequences if the ITC grants an exclusion order against Samsung. Apple now controls 40% of the U.S. smartphone market and Samsung holds a 30% share. LG has announced it is leaving the smartphone business altogether. Excluding Samsung would hand Apple a virtual monopoly, creating a potential smartphone shortage when consumers need them most. Professionals who depend on smartphones — farmers, first responders, healthcare workers, and educators — could suddenly see fewer options and higher prices. Rural and minority customers, many already living on the wrong side of the digital divide, could experience restricted access to smartphones and the Internet.
Worse yet, excluding Samsung might open the door for Chinese smartphone makers like Huawei and ZTE or other up-and-coming Chinese competitors at a time when the U.S. is trying to crack down on Chinese tech companies. Neither of these outcomes makes life better, more fair, or easier for the U.S. economy or U.S. consumers.
The ITC was never intended to settle patent licensing disputes. In fact, the ITC procedure Ericsson is using against Samsung is intended to combat unfair trade practices in import trade to preserve U.S. domestic industries. Ericsson does not even make smartphones any more, let alone in the U.S.
After barely seeing the light of day for decades, the use of the ITC’s Section 337 procedures for patent disputes grew from just 6 cases in the 1960s to 486 in the 2010s. The number of such cases filed in the past decade has continued to rise, and is 20 times those filed in the first 40 years of Section 337 existence.
The use of Section 337 as a weapon for patent licensing disputes is both legally inappropriate and potentially damaging to the U.S. economy. In 2019, for example, the ITC considered alawsuit from an Irish patent troll that would have stopped almost all Apple and Samsung phones from reaching the U.S. market.
The job of the ITC is to ensure fair trade, not to be used as the ultimate leverage in licensing disputes. By embracing the role of de facto patent court and by allowing companies like Ericsson to use Section 337 as a protectionist statute, the ITC has strayed far outside its intended purpose. Instead of ensuring fair trade, ITC exclusion orders in patent cases threaten to stifle competition and limit consumer choice.
The Section 337 process cries out for reform. In the interest of national security and innovation, Congress should amend the Tariff Act of 1930 and assign jurisdiction in patent disputes solely to federal courts, where the normal remedy is money damages, not exclusion orders.
Gary Clyde Hufbauer is an economist and Nonresident Senior Fellow at the Peterson Institute for International Economics. Opinions expressed are his own.