Public policies that rely on free-market forces and avoid government interventions that distort terms of international trade benefit producers, consumers, and national economies alike.  The  full benefits of international trade will not be realized, however, if sales and purchase decisions are distorted by anticompetitive behavior or other illegitimate commercial conduct (such as theft, fraud, or deceit) that undermines market forces.  Thus, the importation of goods produced through the theft of U.S. property, including intangible “intellectual property” (including, for example, patents, copyrights, and trademarks), distorts the market and merits being curbed.

The provision of U.S. trade law that is targeted most specifically at anticompetitive and other harmful business conduct affecting American imports is Section 337 of the Tariff Act of 1930, which is administered by the U.S. International Trade Commission (USITC).  Section 337 condemns as illegal imports that violate U.S. intellectual property (IP) rights related to a U.S. industry or involve “unfair methods of competition and unfair acts” that harm a U.S. industry.  The standard remedy for a Section 337 violation is the issuance of an order excluding the offending imports from the U.S. market.  As I explain in a Heritage Foundation “Backgrounder” published on June 2, 2016, congressional consideration of reforms that address policy constraints on its application, potential limitations on its reach, and the breadth of the conduct it covers could help Section 337 to become an even more valuable tool with which to protect U.S. IP rights and combat truly unfair competition in a manner that is consistent with general free trade principles.

More specifically, while Section 337 should be judiciously modified to make it an even more effective weapon against foreign theft of U.S. IP rights, it should at the same time be amended so that it cannot be applied in a protectionist manner to curb vigorous and legitimate competition from abroad.  The U.S. antitrust laws are well designed to deal with legitimate cases of anticompetitive foreign business activity not involving IP.  Moreover, the USITC’s brief (and unsuccessful) experimentation during the 1970s with non-IP-related investigations revealed that Section 337, if not appropriately cabined, had a welfare-inimical protectionist potential.  That potential will remain unless and until Section 337 is amended to make it an “IP theft only” statute.

My June 2 Backgrounder concludes as follows:

Section 337 of the Tariff Act of 1930 provides valuable relief to American IP holders whose property rights are undermined by infringing imports. In many cases, Section 337 may be the only truly effective means by which industries that depend on U.S. IP can protect their interests and compete on an undistorted playing field with imported products. Nevertheless, a few carefully tailored amendments to the statute could render it even more effective. Specifically, Congress should seriously consider language that would:

• Clarify that Section 337 covers all imports, both intangible (such as electronic data compilations) and tangible;
• Specify that it applies to import schemes aimed at infringing IP rights, even if there is no direct infringement at the precise time of importation;
• Limit the President’s unreviewable discretion to overturn Section 337 exclusion orders, except on grounds of public health or safety; and
• Eliminate Section 337’s application to non-IP-related import practices.

Adoption of reforms along these lines could make Section 337 an even more effective tool with which to protect U.S. IP rights in international trade and ensure that Section 337 is applied in a procompetitive, pro-consumer fashion. Such reforms would enhance the role of Section 337 as a law that supports American innovation and economic growth in a manner that is consistent with free trade principles.