Earlier this year, the International Trade Commission (ITC) affirmed a previous decision by an administrative law judge to prohibit the importation of certain lithium ion batteries and related technologies (to be used in electric vehicle (EV) manufacturing) made by the South Korean firm LG Chem. The ITC’s power to do so comes from Section 337 of the Smoot-Hawley Tariff Act of 1930, which is designed to stop unfair practices in imports. The unfair trade practice in question is the importation of products that infringe on intellectual property rights.
Though importation of products that infringe on American firms’ intellectual property rights is something the U.S. government should generally take seriously, the particulars of this case indicate the ITC is acting contrary to the interests of the industries it is supposed to protect. And the practical effects of the ITC’s decision will be to limit the supply of batteries available for electric vehicles, limiting consumer choice and the U.S.’s ability to meet ambitious climate targets.
First, this is a dispute between two South Korean firms, LG Chem and SK Innovation; no American intellectual property is at stake. In excluding the LG batteries, the ITC has gone well beyond its intended mission and adopted the role of “global trade secret cop.”
Further, this decision has direct consequences for American industries and the transition to low-emission technologies. The batteries in question were to be used by a $2.6 billion SK Innovation plant in Georgia, eliciting calls from Senator Raphael Warnock (D-GA) and Governor Brian Kemp (R-GA) to the Biden Administration to veto the exclusion order. The administration has until April 11th to do so.
The ban includes multiple components of battery technology, such as battery cells, modules, and packs. SK Innovation uses lithium-ion, which has dominated the market even as different battery cell technologies have evolved. The ITC ruling allows a phase-out period in which American auto manufacturers can find alternative suppliers. This acknowledges—but does not remedy—the challenges of producing battery materials at scale, which has stalled EV development domestically and internationally.
Battery innovation remains essential. While costs have declined from $1,000 per kilowatt hour in 2010 to only $150 in 2019, batteries are still almost 50 percent of an electric vehicle’s manufacturing cost. This is the determining factor as to why EVs are more expensive to produce than traditional gas cars. As such, predictions for cost parity often revolve around lower battery costs.
Beyond price, improving battery size and capacity will also assist the transition to electric vehicles by expanding range and lowering charge time. SK Innovation advertises lighter and thinner battery cells, as well as high-energy dentistry lithium-ion batteries.
Though this recent ITC exclusion order is an isolated incident, this case portends conflict between intellectual property law and efforts to reduce carbon emissions.
The general case for the creation and enforcement of intellectual property rights is that in circumstances where the cost of innovation is high and the cost of imitation is low, legal exclusivity is necessary for inventors to recoup the costs of research and development and reinvest their above-market returns into new innovations. But intellectual property—which by design slows the diffusion of progress so that there’s more progress to diffuse—is not the best tool when the threats posed by climate change must be addressed quickly.
Increasing electric vehicle adoption is critical to reducing greenhouse gas emissions in the United States. Transportation accounts for almost one-third of emissions and remains reliant on petroleum products. Even without a low-carbon electricity sector, the lifecycle emissions from an EV are lower than that of a traditional gas car.
Electric vehicles will only get cleaner. Emissions associated with EV charging will shrink as the electricity sector moves towards renewable and nuclear energy, supported by improved battery storage and transmission. In tangent, electric or hydrogen fuel-cell heavy-duty vehicles will begin to reduce the carbon footprint of business, with low-carbon industrial processes offering opportunities for further decarbonization. Rapid decarbonization across sectors will work in conjunction, and a carbon price can further drive innovation.
COVID-19 vaccines provide an analogy that can help clarify the current debate surrounding intellectual property rights and technology to reduce carbon emissions. Are the vaccines and other treatments for COVID groundbreaking innovations? Without question, and in “good times,” we can tolerate the slower diffusion of progress if that’s the only way for progress to diffuse at all. But, much like climate change, the COVID-19 situation will worsen without aggressive measures to slow its spread. This means looking at policy alternatives to help diffuse technology as quickly as possible.
Just as we need an all-of-the-above approach to climate policy, we need an all-of-the-above approach to innovation policy. In some cases, patents and trade secrets as they usually function are the fastest way to develop and diffuse these technologies. But this isn’t the case all of the time, as the recent ITC decision demonstrates.
How can we be sure that innovation policy won’t get in the way of innovation? To start, the current and future administrations should carefully scrutinize any exclusion orders related to green technology. They should also issue guidance to encourage the ITC to be more conservative in its issuance of exclusion orders for green technologies utilized by U.S. manufacturers. Taking a more expansive view of intellectual property and innovation policy, the government should explore the use of compulsory patent licensing with royalties paid by the government and “green tech” patent pools. For trade secrets and other forms of unpatented “know-how,” programs to publish and disseminate this information should also be considered.
A shift from the more traditional model of intellectual property to one that’s focused on open-access innovation will likely require more direct financial subsidies than the regulatory subsidies currently offered by intellectual property law. But as with COVID-19 vaccines, the danger posed by climate change and the need for widespread adoption of EVs makes it difficult to overpay.