Why auto firms are subject to more ITC probes and what they can do about it
Automakers and their suppliers have long participated in Section 337 unfair trade investigations before the US International Trade Commission (ITC), but the scope and subject matter of those investigations is likely to expand.
This is owing to sector innovations—automation, artificial intelligence, electrification, connectivity, and advanced security.
Specifically, semiconductor chips and related technology may soon become a much greater investigational focus. Because automakers and their suppliers increasingly rely on semiconductors, they should be mindful of how their businesses can become subject to expensive ITC investigations and what they can do to manage risk.
ITC investigations, generally
Section 337 of the Tariff Act of 1930 authorises the ITC to issue exclusion orders. An exclusion order commands US Customs and Border Protection (CBP) to exclude articles from entry into the US that (1) violate US-based IP rights or (2) otherwise constitute an unfair act that injures a domestic industry in the US.
The first type of investigation involves statutory IP claims including copyrights, trademarks, and, most commonly, patents.
The second type of investigation involves other unfair acts, such as trade secret misappropriation.
The ITC can issue an exclusion order banning the infringing articles from importation, but it cannot award money damages.
In ITC investigations involving a patent infringement claim (the most common), the complainant must satisfy the Commission’s unique two-prong domestic industry requirement.
The economic prong considers the complainant’s or its licensee’s domestic investment in plant or equipment, labour or capital, or research and development. These domestic investments must be significant or substantial to meet the ITC’s threshold requirement.
The technical prong, meanwhile, considers whether the claimed investments pertain to material protected by the IP right. The complainant must prove both that the imported articles infringe on the complainant’s patent and that its domestic industry article practises the patent.
A coming shift in focus
The ITC is no stranger to disputes involving automotive components. Investigations by the Commission in the automotive space historically focused on the importation of mechanical and electromechanical articles ranging from tyres, wheels, and engines, to security systems, control systems, infotainment systems and the like.
These investigations also primarily involved disputes between respective Tier 1 and Tier 2 suppliers, at times implicating the automakers themselves. Now automakers are increasingly being named as respondents in these investigations.
Since most semiconductor chips are foreign-manufactured, exclusion orders are an attractive remedy for patent owners, exposing automakers and suppliers to being ensnared in expensive investigations. Businesses that fail to consider how ITC investigations can impede their operations may find themselves in such a position.
A Deloitte study emphasised four areas where more semiconductor chips will be added to automotive systems in the next decade: automation, electrification, digital connectivity, and advanced security. Each of these technology areas requires increasing numbers of electronic components, from high-speed processors to memory, microcontrollers, sensors, and data links.
As automakers continue to incorporate advanced technologies into their vehicles, they can expect to become increasingly drawn into more broad and technically complex ITC investigations.
Proactive measures to consider
As more advanced electrical systems are added to everyday vehicles, automakers and suppliers can expect to increasingly be subject to ITC investigations involving semiconductor chips and related technologies. For potential respondents, proactive measures can be taken to reduce the likelihood of being subject to a costly investigation.
Those include:
