Are Laptops the Next Baby Formula?
The same recipe for disaster that led to millions of parents across the country struggling to find a sufficient supply of infant formula could play out in another critical sector of the economy: laptops.
Earlier this year, the Food and Drug Administration (FDA) shut down a contaminated factory run by Abbott Labs. While Abbott provides over 40% of baby formula in the United States, this single factory manufactured about 25% of the baby formula supplying the U.S. market. Although guided by good intentions, the FDA did not consider the consequences of taking a single factory off-line and did not fully appreciate the impact on American consumers. The agency tasked with keeping products safe also needs to keep products available.
Unfortunately, this is not a problem that is unique to the FDA. The International Trade Commission (ITC) is often asked to exclude large swaths of products that constitute significant portions of the U.S. market. While the ITC is ostensibly acting to protect U.S. industries and consumers from imports that are “unfairly competing,” it often fails to consider the consequences of its actions on the American economy and consumers. For example, the ITC recently considered an investigation that held the potential to exclude more than 40% of personal computers, including laptops, from the U.S. market.
The ITC’s investigation was brought by Future Link Systems (FLS), an entity that provides no products and no services to the U.S. market. FLS is a patent troll that purchased a U.S. patent and started a litigation campaign suing Dell and HP, among others, for patent infringement both in U.S. District Court and in the ITC. In the District Court, FLS alleged that a chip inside the laptops used its patented technology without its permission and asked for compensatory monetary damages. This is the normal and appropriate remedy provided for under the patent laws of the United States.
However, in addition, FLS went to the ITC and asked for an exclusion order banning the importation of Dell and HP laptop products. Much like the baby formula factory situation, Dell and HP each have approximately 23%-27% share of the U.S. PC market. Exclusion of either one of these suppliers, let alone both, could, analogous to the baby formula shortage, cause vast shortages in the PC market. Though the severity of this outcome is not as life-threatening as a shortage in baby formula, the potential impact on various sectors of our economy and populations would be harmful.
Millions of Americans – particularly those in minority and low income communities – already struggle to access critical online services related to education, healthcare, and employment. Upending the supply of smart devices would raise prices and limit supplies at a time when family budgets are already severely challenged, and when there is great need for technology tools given the acceleration to digital.
Like the FDA, the ITC has been directed to consider the public interest as paramount when deciding whether to bar a product from entry to the U.S. The ITC is supposed to analyze four distinct aspects of the public interest: public health and welfare; competitive conditions in the economy; the production of similar products in the U.S.; and U.S. consumers.
A wide range of stakeholders, from Hispanic interest groups to rural communities, have repeatedly called on the ITC to issue public interest exemptions in the past and ensure consumers maintain access to critical products, including personal computing products. Unfortunately, the ITC seems unlikely to listen: It’s been almost forty years since it last used a public interest exemption to decline issuing an exclusion order.
The FLS case unfortunately is not an isolated one, either. Another hedge-fund backed troll, Atlantic IP Services, a self-described “leader in patent monetization services,” has made a name for itself by acquiring patents and then pursuing aggressive litigation against some of the world’s largest consumer technology companies. Atlantic IP is funded by Magnetar Capital, which moved on from catalyzing and capitalizing on the 2008 financial crisis to patent trolling. Its various troll entities have attacked products ranging from smartphones and laptops to televisions to automobiles.
The ITC’s willingness to embrace these cases raises a huge red flag. The FDA’s recent blinkered policy choices should make the ITC hypervigilant; it should be taking every precaution to avoid the serious damage created by these kinds of market disruptions, not welcoming these complaints.
The baby formula shortage showed us what happens when a government agency acts without conducting a diligent and inclusive study of the potential consequences of its actions, and adjusting its approach if necessary. The ITC shouldn’t make the same mistake with laptops or any other product so critical to U.S. consumers and our economy.
Karen Kerrigan is the President of the Small Business & Entrepreneurship Council.
