ITC Exclusion Order Could Threaten Future Of 5G

A timely report from the European Union (EU) recently detailed the risks of state-backed threats to 5G infrastructure and network security. “In this context of increased exposure to attacks facilitated by suppliers,” the report concluded, “the risk profile of individual suppliers will become particularly important.” While the EU study did not come out and say it, the “suppliers” that most concern intelligence officials are Chinese equipment suppliers like Huawei, DJI, Lenovo, Hikvision, and so on.

As U.S. Policymakers work to implement critical 5G innovations for America’s future, they have already recognized and acted against this particular threat, using bipartisan federal legislation and Commerce Department restrictions to keep Huawei out of American 5G networks. But other significant risks to America’s swift deployment of a secure 5G infrastructure may be slipping past notice.

One major challenge could arise out of a case pending before the U.S. International Trade Commission (ITC). The ITC is a federal agency designed to protect US businesses against unfair foreign trade practices. It has the power to issue an “exclusion order”—basically, a total ban on importing a product into the U.S.—if it finds that the product infringes any part of a patent or other intellectual property - on the theory that this should help US domestic industries thereby protecting the US economy.

Ironically, the ITC has become a favorite forum for patent assertion entities that don’t much care about helping US industry or the US economy. Instead, they just want to use the threat of an ITC exclusion order as a bargaining chip to extract extortionate royalty payments. The maneuverings of one such entity—a mysterious Irish company called Neodron—threatens America’s position in the race for 5G, opening the door for China to take the lead.

Taking a step back, it is important to appreciate just how revolutionary 5G cellular network technology will be for American consumers and businesses. The analytics firm IHS Economics estimates that by 2035, 5G will enable $12.3 trillion of global economic output. The associated global 5G value chain will support 22 million jobs, and invest an average of $200 billion annually. Overall, 5G’s contribution to global GDP by 2035 will be equivalent to the GDP of India, currently the seventh largest economy in the world. That level of investment will facilitate 5G’s potential role in everything from augmented reality to self-driving cars and connected cities.

With 5G poised to usher in such incredible opportunities for American companies, communities and consumers, the potential consequences of any ITC case that threatens 5G need to be taken extremely seriously. Neodron, a firm incorporated in Ireland just six months before filing its complaint, seems to be a non-practicing entity (or “NPE”). NPEs are not in the business of inventing and commercializing new products and technologies. They instead acquire a few patent rights related to a complex product so they can seek out opportunities to sue for infringement and violations of licensing agreements related to some element in the product. Neodron alleges that many respected technology companies—including Amazon, Dell, HP, Microsoft, Motorola, and Samsung—are infringing on patents related to touchscreen technology.

Neodron is therefore asking the ITC to impose an exclusion order preventing huge proportions of the smartphones, tablets, and laptops manufactured by these companies from reaching American consumers. A sweeping exclusion order could stop the importation of 80% of Android tablets, 86% of Windows tablets, and more than 50% of Android smartphones. If millions of mobile devices—most of them powered by US ingenuity and manufactured by companies with deep investments in America —were barred from importation, it would force many American consumers to look to Chinese devices - which could come in freely.

In the short term, this would wreak havoc on American businesses and consumers who depend on these devices. But the long-term effects are even more disconcerting. Currently, for example, Samsung makes the only 5G smart phone on the US market. An exclusion order shutting these products out of the market thus threatens to hobble the development of 5G infrastructure—without reliable 5G devices, there is little incentive for 5G networks. And Chinese devices would have a ripe opportunity to fill this self-inflicted supply gap.

In other words, a broad exclusion order from the ITC could lead to the very phenomenon the EU report warned about: over-dependence on one source for equipment where the suppliers’ security profile is concerning. As the report notes, this “increases the exposure to a potential supply interruption” whether from commercial or other causes. It also leaves the huge US market wide open to be dominated by a country described by US defense experts as the most challenging strategic competitor to the United States for the coming century.

In a recent piece on the development of 5G networks, the Financial Times editorial board concluded, “Western governments should aspire to open, competitive markets.” But Neodron’s misguided call for an exclusion order on so many devices that are integral to the US winning the race for 5G dominance would do the opposite. China is happily situated to dominate the much less open, less competitive market Neodron would create.

The United States government has deep interests in growing its economy, ensuring competitive markets, and protecting intellectual property. With U.S. Courts fully available to all U.S. Patent holders if they believe they are owed royalties, the U.S. Can readily protect all these interests and avoid the serious threats to its markets and future 5G development by rejecting an ITC exclusion order that would hand China an advantage in mobile device technology at a critical time in the development of 5G technology.