Time for Washington to take on ITC reform
This article has been written by Michael McGeary and was originally published in Delaware Business Times on January 31, 2023.
The new year has brought with it renewed fears about inflation in the global economy, with new data indicating that an astounding 90% of small business owners are deeply concerned about rising costs.
According to leading economists, rising prices have been driven in large part by international trade issues and ongoing supply chain struggles, problems that leaders in Washington, including President Joe Biden, have vowed to address. However, even though lawmakers in D.C. claim they’ve taken a “whole of government” approach to tackling supply chain issues and taming inflation to support small businesses, they’ve failed to take on their own government agencies, like the International Trade Commission (ITC), that are squeezing business owners and startup companies.
While the ITC’s chief purpose is to protect U.S. businesses from unfair trade practices and intellectual property theft by bad foreign actors, in recent years the commission has wielded its power to create more problems than it solves. The ITC’s primary tool to enforce its decisions, heavy-handed punishments banning products from U.S. markets called exclusion orders, present incredible risks to innovative American startups and critically important small businesses by blocking essential products and throwing supply chains into chaos.
These exclusion orders too often represent a death knell for small businesses that depend on reliable access to specific products and components, and they can ruin startups that need dependable supply chains. For example, Hasbro recently filed an ITC complaint against an Austin-based startup, Gel Blasters, for patent infringement. In its complaint, Hasbro alleges Gel Blasters infringed Hasbro’s “exclusive patents” for the water-based gel technology. According to a report in Politico Influence, the two companies had previously engaged in discussions to establish a potential partnership but those talks did not result in a formal agreement despite Hasbro launching its own line of gel-based Nerf guns. Gel Blasters sued Hasbro in federal court but stated they were “shocked” by the ITC complaint noting they “… very quickly had to find out what the ITC was and what it meant.”
To make matters worse for startups like Gel Blasters, the ITC can issue broad, expansive bans, known as “general exclusion orders,” which prevent entire categories of products from being imported into the United States, even items made by companies not listed in the original ITC suit. Recently, the commission has issued these heavy-handed general exclusion orders on behalf of major companies like Bic and Canon, straining supply chains and preventing smaller competitors from importing products. And on Christmas Eve, the commission even issued an exclusion order against Apple Watches based on patents that were invalidated by the Patent Trial and Appeal Board, a ruling that will significantly hurt startups that rely on the technology – unless the decision is vetoed by President Biden.
Simply put – these exclusion orders threaten innovative startups and the American small businesses that the ITC is responsible for protecting. In theory, the ITC is supposed to consider the harmful consequences of its decisions by applying the commission’s “public interest” test. However, in recent years ITC judges have failed to appropriately weigh the effects of their rulings. Despite the fact that a single exclusion order can cost the economy billions of dollars, the commission has been extremely reluctant to deny an exclusion order on the grounds of public interest – the ITC has done so just three times, and the last time the commission properly applied its public interest test was 35 years ago.
Startup companies are often responsible for the new, innovative ideas which create jobs and build whole new sectors of our global economy, building new vehicles for global trade, and building wealth to the tune of trillions of dollars. Small businesses have rightly earned the reputation as the “backbone of the American economy,” representing two-thirds of new jobs and 43.5% of the American GDP. But despite that, it’s clear that the ITC’s commissioners and judges have failed to realize the full impact of their actions, and it’s time for leaders in Washington to rein in the use of exclusion orders and the real risk they represent.
Now, we need the same politicians who are always happy to put small businesses at the center of their campaign ads and stump speeches to take action. Congress has taken action domestically in the recent past to thwart the actions of patent trolls, and elected officials need to get serious again by addressing the ITC’s use of exclusion orders. Currently, Congress has the chance to do just that with bipartisan legislation sponsored by Reps. David Schweikert and Suzan DelBene that would blunt the ITC’s ability to issue excessive punishments and hurt small businesses and startups. Leaders in Washington, like Sens. Tom Carper and Chris Coons, can use their authority as members of key committees to rein in the commission. The ITC’s misuse of exclusion orders is a serious threat to small businesses and startups, and it could do serious damage to our country – we need Washington to act.
Michael McGeary is the chief operating officer of Allied for Startups, a national advocacy group for startups.