United States: Digital Imports: Should Downloads Be Subject To The Tariff Act?

On April 3, the International Trade Commission (ITC) ruled that the agency has jurisdiction to police digital transmission for intellectual property infringement. The ITC hears trade disputes regarding "articles" imported into the United States and frequently orders customs agents to cease infringing goods at the border. This new ruling extends its authority to stopping pirated music, software, and other infringing files from being electronically transmitted into the United States. In January of this year, the commission solicited comments on the issue of digital jurisdiction. Within days, technology and entertainment heavyweights such as Google, Nokia, the Motion Picture Association of America (MPAA), and the American Academy of Publishers (AAP), submitted briefs and took sides. The commission's conclusion that the term "articles" as used in the Tariff Act includes digital transmissions provides a new tactic for intellectual property rights holders to fight digital infringers.

Section 337 Investigations

Under section 337 of the Tariff Act of 1930, the ITC has jurisdiction to conduct investigations of unfair trade practices, including patent, trademark, and copyright infringement. Intellectual property owners, if successful, can block infringing products from entering the United States. Depending on the circumstances, section 337 investigations are seen as an effective alternative to litigation in federal court. Most notably, investigations are before an administrative law judge and typically last between 12 and 18 months, depending on the complexity. One disadvantage is the limited relief available. The ITC provides two major types of remedies for violations of section 337: (1) an exclusion order, which allows customs agents to prevent the entry of infringing articles into the U.S., and (2) a cease and desist order, which compels an importer to stop importing infringing articles or subjects the importer to fines of $100,000 or twice the domestic value of the articles for each day the order is violated (whichever is greater).

Google v. Rights Holders

The MPAA, the AAP, and Nokia each argued that the term "articles," as used in the Tariff Act, includes electronic transmissions. The MPAA and the AAP's motivations were clear. Movies, music, and publications are easily streamed or transmitted over the internet and jurisdiction over electronic transmission allows the industry to fight online piracy with section 337 investigations. Similarly, Nokia wishes to have another tactic to stop the patented software in its telecommunications network equipment from being unlawfully distributed.

Those in favor of ITC jurisdiction over electronic transmissions argued that the mode and manner of importation should not matter. Clearly, the ITC has jurisdiction to order customs agents to cease CDs, DVDs, or USB drives at the border if they contain infringing content. Nokia argued that it would be "illogical" and would undermine the intent of the statute if the agency did not have jurisdiction to stop the same infringing content from being imported through electronic transmissions.

Google strongly opposed the commission's jurisdiction over electronic transmissions. The technology giant is already bombarded with subpoenas to identify anonymous infringers and takedown notices under the Digital Millennium Copyright Act. The new obligation of complying with ITC exclusion orders may create an administrative nightmare for Google and others.

Beyond Entertainment

In its April 3 ruling, the ITC sided with rights holders and decided that "articles" under the Tariff Act of 1930 was broad enough to include electronic transmissions. The ruling reaches beyond the entertainment and software industries. The decision was also being closely watched by the manufacturing industry, specifically those in the quickly evolving 3D printing business. Additive manufacturing processes, more commonly referred to as 3D printing, provide a cost-effective solution for business and consumers to manufacture objects on demand with a digital file that provides instructions for building the object. Files containing instructions to manufacture infringing goods can be distributed (or imported) with the click of a mouse.

Align Technology, the makers of the Invisalign®, brought the complaint that resulted in this month's ruling. The company's legal battle with a competitor illustrates the challenges that 3D printing creates for rights holders. In 2006, Align Technology filed with the ITC a patent infringement complaint against OrthoClear, Inc., and the parties subsequently entered into a consent order where OrthoClear ceased importing dental aligner products into the United States. Several years later, ClearCorrect, a company allegedly managed by prior OrthoClear employees, began transmitting digital data into the United States and manufacturing allegedly infringing braces using 3D printing technology. In 2012, Align returned to the ITC with a complaint to enforce its 2006 consent order against ClearCorrect and a new complaint of patent infringement. The Administrative Law Judge found that the digital transmissions infringed Align's patents and recommended a new cease and desist order be issued for the digital transmissions. On April 3, 2014, the full commission affirmed the Judge's conclusion that "articles" includes digital transmissions.

Conclusion

The ITC's interpretation that the term "articles" includes digital transmissions creates a new weapon for intellectual property rights holders in a variety of industries. Others, such as Google, fear the regulatory burden of additional subpoenas and takedown notices if such investigations become widely used. The ruling brings one of the most efficient and effective venues for fighting infringement into the digital age.

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