Plan solves - reforming section 337 is key to allowing broader scope of IP protection from adversarial countries.

Given the existence and legislative history of Section 337, it is an ideal tool to be adapted for today’s U.S. trade challenges. But to operationalize it in a way that is effective—and also not too broad—there are a number of reforms Congress, USITC, and the Biden administration should make.

Beef up 337’s unfair trade provisions.

As noted, 337 has been increasingly used to adjudicate patent cases between multinational companies. While reforms to this process may be needed, they are beyond the scope of this paper.73 Moreover, there is no reason to do away with this avenue of IP protection for firms doing business in America. The goal should be to beef up the unfair trade practices component of the statute. However, USITC has noted, “Most Section 337 investigations involve allegations of patent or registered trademark infringement. Other forms of unfair competition, such as misappropriation of trade secrets, trade dress infringement, passing off, false advertising, and violations of the antitrust laws, may also be asserted.”74 It does not talk about forced technology transfer, closed domestic markets, subsidies, or other unfair practices. In fact, as Kaye and Plaia Jr. wrote in the Maryland Journal of International Law, the commission, in its Memorandum Opinion in Color TV Sets stated that “section 337 is an authority of concurrent jurisdiction with all other statutes applicable to unfair practices in import trade … since in most cases bounties or grants are actions of a foreign government it would appear that such activities would not be the type of unfair methods of competition or unfair acts contemplated by section 337.”75 The Commission could start by modifying this ruling and making it clear that going forward unfair trade practices would have a much wider scope to include virtually any action from a non-market, non-rule-of-law nation that gives a significant competitive advantage to its firms. Ideally, Congress would make it clear that these and related unfair trade practices are eligible for Section 337 investigations, but only against companies from non-market, non-rule-of-law economies. The purpose of reforming Section 337 is not to be able to better adjudicate trade issues with our allies—we have bilateral trade agreements and the WTO for that. In addition, exclusion orders should be able to be issued not against a particular product (e.g., 12-inch steel pipe), but rather on all products or services from a firm in a non-market, non-rule-of-law economy found to have benefited from unfair trade practices.

Eliminate the requirement for injury for unfair trade practices claims.

Over time, Congress has somewhat eased the injury standard for winning Section 337 decisions related to IP violations. However, for unfair trade practice investigations commenced under subsection of the statute, the standard remains too high. As USITC noted in unfair trade cases, “[T]hreatened or actual injury must be shown.”76 It should be irrelevant if the domestic company is harmed in the here and now. The point is that the unfair practices should not be rewarded, period. The other point is that all too often, especially in technologically complex industries, by the time harm is determined it is too late: The company has suffered irreversible decline in its competitive position. Adjudicating blame becomes a coroner’s inquest over dead U.S. companies, For instance, the $42 billion in subsidies for solar photovoltaic (PV) cells the Chinese government provided from 2010 to 2012 alone helped China’s global share of production of PV cells (the industry’s core technology) surge from 14 to 60 percent between 2006 and 2013.77 The effect of this surge was to knock some 200 to 300 U.S. solar start-up companies out of business.78 As such, Congress should eliminate the requirement for injury in unfair trade practice claims against non-market countries when the unfair trade actions are pervasive and large. Make it clear that any agency of government can file a complaint to initiate a Section 337 unfair trade investigation against innovation mercantilists from non-market, non-rule-of-law economies. Under current law, only companies can bring Section 337 complaints, and only the Commission can self-initiate an investigation. As noted, this limitation has led to significant underenforcement against non-market economy nations’ unfair trade practices. Chinese practices that give its companies an unfair advantage in international markets harm the United States as a whole, not only firms in the United States. As such, any agency of the U.S. government should be able to file a Section 337 complaint to defend the nation against this kind of economic aggression. Increase funding for the departments of Commerce and Justice to file Section 337 unfair trade practices cases with USITC and increase its funding to handle these cases. To date, the U.S. government has not approached trade enforcement strategically in the context of an overall national industrial strategy. If it did, it would systematically investigate unfair trade practices in countries such as China that harm key U.S. industries.

Moreover, other federal agencies, including Commerce and USTR, have taken a hands-off approach to USITC, rather than using it as a tool for U.S. trade policy. The problem with that approach it is ITC does not have the resources to proactively investigate unfair trade practices in non-market economies and has less insight into those practices than Commerce or Justice departments have. Staff in USITC’s Office of Unfair Import Investigations focus on investigating particular 337 cases filed by industry.

The U.S. government needs greater resources and commitment to assessing unfair trade practices in China. USTR has some of these resources, but its role is principally in trade negotiation. As such, Congress should establish within the Department of Commerce’s International Trade Administration the position of Assistant Secretary for Non-market Economy Analysis whose mission would be to thoroughly analyze and document the extent of unfair trade practices in economies such as China’s (particularly at the industry and firm level), and where warranted, work with the Department of Justice to file Section 337 complaints at USITC. To do that, Commerce should hire staff fully proficient in Mandarin, with some based in China. One advantage of this is it would send a clear signal to USITC and its commissioners that some key cases are important to the national interest, and it would mean that more information about unfair trade practices is officially on the record. Congress should increase funding for USITC to enable it to handle its increased responsibilities in enforcing Section 337. USITC is already underfunded given its current mission and scope. If Congress reforms and expands the scope of Section 337, it will need even more resources to address the challenge. Such funding should be considered an investment. Just as funding the Department of Defense is an investment in U.S. military security, funding USITC is an investment in U.S. economic security. Congress should establish within the Commerce Department’s International Trade Administration the position of Assistant Secretary for Non-market Economy Analysis. One reason there have not been more unfair trade cases before USITC is the commission has been conservative in its interpretation of what “unfair” means. It does not want new theories or interpretations of unfair trade practices because it rightly knows that it has limited resources and could be overwhelmed with cases. Congress should rectify this by increasing funding for both the Office of Unfair Import Investigation and the Office of the Administrative Law Judges.

Amend Section 337 to allow broader exclusionary orders to classes of products, including digital products.

It makes no sense to have a different standard for unfairness or IP violations to tangible products than for intangible (often digital) products. Congress should clarify the law to that end.

Make the use of Section 337 for IP cases between U.S. and allied multinational firms more difficult.

As noted, the lion’s share of 337 cases involve patent and other IP disputes, often between two American companies. Congress should take steps to reduce the attractiveness of using 337 for these kinds of cases firms can bring in Federal District Court instead. One bipartisan bill, H.R. 5184, introduced by Congresswoman Susan DelBene (D-WA) and cosponsored by Representatives Schweiker (R-AZ), Estes (R-KS), and Beyer (D-VA) would make needed changes, including to the domestic industry standard to require actual adoption and use of the disputed articles, to require licenses to willingly join the claim if they are listed by the claimant, and to require the initial determination of the administrative law judge for an exclusionary order to take into account the public interest standard. Another change could require that exclusion orders could not be made unless the product in question by the plaintiff is commercially offered. Congress could also extend the time USITC has to make its decisions on IP cases.

Reduce the legal standard for winning cases against firms in non-market, non-rule-of-law economies that benefit from unfair trade practices.

One of the challenges with winning Section 337 cases against Chinese firms is the latter are becoming much more sophisticated in defending themselves, often hiring premier Washington DC law firms to defend them. In fact, China’s Ministry of Commerce has prequalified certain U.S. law firms Chinese companies may enlist when Section 337 cases are brought against them.79 The Chinese government also provides counsel and help to its firms to avoid being found to have violated Section 337.80 And while all firms in theory are entitled to full judicial access in the United States, giving firms in non-market, non-rule-of-law nations the same rights as firms in other nations means “guilty” firms in the former are more likely to win than they would otherwise. The reason is the non-rule-of-law nature of the Chinese system means it can be hard to meet a high evidentiary standard that would be appropriate in a rule-of-law nation. As such, Congress should mandate that lower standards of evidence apply to cases involving non-market, non-rule of law economies.

One way to do this is to apply a “rebuttable presumption,” something the Uyghur Forced Labor Prevention Act (UFLPA) contains. China’s lack of transparency makes it more difficult for U.S. Customs to determine which imports from China were produced with forced labor. The UFLPA requires the U.S. government to shift the burden of proof to companies with supply chains that involve products from Xinjiang Uygur Autonomous Region, to show that they were not using forced labor to manufacture the products imported into United States.

“Rebuttable presumption” should also be applied to unfair trade practices from non-market, non-rule-of-law countries. This would not ban imports per say, but would shift some of the burden of proof to the Chinese firm that is facing a 337 exclusion order.

In such instances, if U.S. companies or U.S. agencies bringing cases can show with a reasonable level of assurance that Chinese companies are unfairly benefiting from unfair trade policies and practices, and the relevant Chinese companies cannot definitively disprove the claims of unfair benefit, an USITC exclusion order would not be able to be overturned by the courts.

Congress should also allow these kinds of unfair trade practices cases against non-market economies to be decided over a longer period than the current 15-month requirement. The reason is these cases can be more complicated to investigate and adjudicate, and it is important that USITC has adequate time to do so.