The US International Trade Commission (ITC) was instated with the aim of protecting US domestic industries from instances of unfair competition from international businesses, often through its ‘unfair import’ or Section 337 evaluations. These investigations have, for several decades, been utilised as a weapon for US businesses in the battle against exploitative trade practices. However, as reports suggest, seashell corporations – primarily originating from overseas – have begun to take advantage of Section 337 to engage in acts of corporate extortion against domestic companies. This is an issue that Congress must urgently intervene in to halt potential harm to the US economy.
Companies often utilize ITC’s Section 337 investigations when they suspect rivals of importing products that pose potential IP infringement risks. Following an investigation’s conclusion, the ITC is authorized to launch drastic measures including instructing the Customs and Border Protection to halt the entry of such offending products into the country.
Rich businesses and countries often consider shell companies to serve their interests, including patent trolling. These so-called non-practicing entities (NPEs) own intellectual property but do not utilize it constructively. Instead, they hold extensive patent portfolios and then monetize them by filing controversial lawsuits. NPEs accounted for the majority of patent litigations presented in US courts for a substantial period. In addition, they initiated one-third of ITC’s Section 337 investigations during the previous year.
The existence of NPE-led investigations is deeply concerning, regardless of whether or not the accused companies are found guilty. These cases often contain extraordinarily high expenses, forcing US businesses into a corner, having to divert substantial resources towards legal defenses and future-proofing products — a cumbersome process that involves product re-engineering and the development of contingency production plans.
Status quo regulations do not necessitate the disclosure of NPE investors to the ITC, which provides opportunities for foreign entities to launch investigations against their American competitors. Without transparency, it is impossible for the ITC to differentiate between cases: the NPE looking to exclude commodities from the US market could either be an arm of a foreign sovereign wealth fund or a strategic competitor hoping to undermine the US industry.
Congress, being in charge of budget allocation, could effectively intervene. Over $122 million has been allocated to the ITC in the federal agency funding proposal for fiscal 2024 for executing enforcement caseload. The draft bill from the House of Representatives has clarified that Section 337 patent infringement investigations must be halted until investors involved in such cases are disclosed.
Apart from examining issues with recent ITC probes, Congress has proposed limited NPEs’ ability to abuse Section 337 investigations by strengthening domestic industry standards via the bipartisan Advancing America’s Interest Act. The proposed measures in this Act would necessitate businesses to demonstrate their vested interests before launching an investigation intended to protect the US industry.
The ITC’s recurring failure to implement necessary measures independently underscores the need for legislative interference. NPEs’ misuse of Section 337 investigations undermines the original purpose of the ITC and leads to a harmful impact on American economic interests. It is incumbent upon Congress to implement additional protective measures against such legal manipulation.