Late last year, the latest Apple Watches were officially banned from being imported into the United States. Medical technology company Masimo had won a case against Apple that claimed the smartwatches were illegally using the company’s intellectual property.
And even though this decision is on hold pending appeal, the ban on the most popular smartwatch in America raises many questions about the role of patents and America’s innovation economy. It’s also interesting that the International Trade Commission banned the sale of an American company’s products in America.
When one looks deeper, it’s obvious the ITC is a structurally flawed entity that had at its disposal one possible action — an import ban, a remedy that was initially intended to be used in the case of foreign governments or companies stealing U.S. intellectual property where it was tough to determine monetary damages and even more challenging to collect them.
Over decades of aggressive adjudications, the ITC has massively broadened its legal jurisdiction. In so doing, it has become a preferred destination for those looking for leverage via negotiated settlements rather than resolutions over patent disputes. Masimo’s victory at the ITC demonstrates a potential threat to America’s innovation economy.
The traditional venue for U.S.-based companies such as Massimo to file complaints against other U.S.-based companies allegedly infringing on their patents is the U.S. court system, and that’s where Masimo began. Masimo’s chief executive, Joe Kiani, sued Apple in federal courts using the same arguments he brought to the ITC. Simultaneously, he sued Apple, claiming it stole Masimo’s trade secret, leading to a federal court declaring a mistrial due to insufficient evidence. America’s legal system is among the best in the world, and the output of its proceedings should have the final say.
Instead, Masimo hedged its bets by turning to the ITC, where its claims found a receptive audience.
Former senator Patrick Leahy highlighted the dangers of ITC overreach in a recent op-ed in the Boston Herald, arguing that a lawsuit like Masimo’s “slows innovation and wastes resources” by encouraging competition by litigation instead of innovation.
Kiani seems to agree that his litigation against Apple is nothing more than an attempt to compete in the courts rather than in the marketplace. Kiani acknowledged seeking increased market share through the ITC decision. Rather than winning through lawyers, Apple acquired its market share by prevailing against numerous competitors, from Fitbit to Garmin, with a better product at a fair price. Consumers lose when competition takes place among lawyers rather than product quality or innovative designs.
Leahy notes, “The Apple Watch exclusion order reveals why trolls have gravitated to the ITC as a venue. The potential downside for accused infringers — having a product blocked from the U.S. market — gives patent trolls all the leverage they need to enter settlement negotiations at a massive advantage.”
Masimo’s success has probably motivated other patent trolls targeting American innovators to pursue their actions at the extra-judicial ITC rather than via legal processes in the U.S. courts.
Innovative American companies should not bear the burden of bureaucratic overreach that enables legal shake-downs by giving bad actors a workaround to the courts. At a time of increasing technological competition among the world’s leading powers, we must encourage innovation, not threaten it.
It’s time to restrain and reform the ITC and end its unholy alliance with patent trolls.