United States: ITC Exceeded Authority By Reviewing ALJ’s Order Denying Motion To Terminate Investigation

In Align Technology, Inc. v. International Trade Commission, Nos. 13-1240, -1363 (Fed. Cir. July 18, 2014), the Federal Circuit reversed as arbitrary and capricious the ITC's reversal of an ALJ's order, holding that, procedurally, the ITC may only review initial determinations, not orders.

Align Technology, Inc.'s ("Align") primary product, the Invisalign System, based on Align's patented technology, offers an alternative to orthodontic braces.  Invisalign treats teeth misalignment gradually, avoiding the need for braces.  By wearing a progression of individualized clear dental aligners, many patients avoid braces, which can make wearers uncomfortable or self-conscious.  Because care providers must personalize each set, they obtain data from the patients' teeth to create three-dimensional models for the aligner molds.

In 2005, Align's founder and former Chief Executive Officer founded a rival company, and began manufacturing dental aligners using former Align employees in Pakistan and the United States, and importing them into the United States.  In response, Align filed an ITC complaint against OrthoClear, Inc., OrthoClear Holdings, Inc., and OrthoClear Pakistan Pvt, Ltd. (collectively "OrthoClear"), alleging patent infringement and trade secret misappropriation.

The parties reached global settlement requiring OrthoClear to assign its intellectual property portfolio to Align, to agree to a Consent Order, and to file a joint motion to terminate based on that Consent Order.  The ALJ granted the Consent Order, which indicated that "the patents or trade secrets described therein (the 'Articles')" were prohibited from importation until the patents expired, and that the order was "applicable and binding upon OrthoClear, its officers, directors, agents, servants, employees, successors and assigns, and all persons, firms, or corporations acting or claiming to act on its behalf or under its direction or authority."  Slip op. at 4-5 (citations omitted).

Align began suspecting that OrthoClear was continuing to violate the Consent Order under the guise of a new corporate identity, ClearCorrect Pakistan (Private), Ltd., ClearCorrect Operating, LLC, and four other individuals (collectively "Intervenors"), and thus filed two ITC actions—an enforcement proceeding for violation of the original Consent Order and a new § 1337 complaint. 

When instituting, the ITC recommended that the ALJ first consider (as potentially dispositive) if the digital datasets identified in the enforcement complaint were covered by the Consent Order, and requested that the decision be "issued in the form of an initial determination."  Id. at 7 (citation omitted).  Intervenors moved to terminate, arguing that their digital datasets were not articles covered by the Consent Order.  The ALJ issued an order finding that the accused digital datasets fell within the scope of the Consent Order and refused to terminate the proceeding.  Intervenors sought, and were granted, ITC review, and the ITC determined that the ALJ's order was really an initial determination, found jurisdiction, and reversed the ALJ's order.

"But under these circumstances, the Commission cannot circumvent its own rules.  If it desires to do so, Rule 201.4(b) gives it broad authority to waive, suspend, or even amend its rules, none of which happened here.  Until it does, its rules are binding and the Commission must follow them." Slip op. at 16.

On appeal, taking into consideration that it must set aside any findings or conclusions of the ITC that are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with [the] law," the Federal Circuit found that "the Commission circumvented its own rules without waiving, suspending, or amending them," and reversed.  Id. at 10 (quoting 5 U.S.C. § 706(2)(A)).  Turning to the ITC's Rules of Practice and Procedure, 19 C.F.R. § 210.1 et seq., the Court explained that the ITC was bound by Rule 210.42(c) and was required to rule only on initial decisions, not orders.  The Court looked to the text of Rule 210.42(c), which requires that ALJs "shall grant the following types of motions by issuing an initial determination or shall deny them by issuing an order."  Slip op. at 10-11.  Noting that Intervenors had procedurally moved for a motion to terminate under Rule 210.21 and that the ALJ properly denied it under Rule 210.42(c), the Court found that the ITC acted ultra vires.  While the ITC can immediately review the grant of certain requests for relief, the Court explained that the regulations explicitly isolated the denial of requests for relief from interlocutory review.  Accordingly, the Court found that the ITC exceeded its authority by reviewing the ALJ's order, which was not subject to review under Rule 210.24.

The Federal Circuit disagreed with the ITC's contention that it had discretion to construe the ALJ's order as an initial determination.  The rules being clear that denials of motions to terminate are to be issued as nonreviewable orders, the Court explained that the ITC's "regulations explicitly define which ALJ decisions should be considered orders, and decisions denying motions to terminate fall in the latter category."  Id. at 12.  The Court also did not find persuasive the ITC's argument that "the Notice superseded its rules by redefining initial determinations for purposes of this proceeding to include a denial of a motion to terminate the proceeding."  Id. at 14.  Indeed, the Court noted, the ITC "may supersede its rules only by waiver, suspension, or amendment of the regulation."  Id. (citing 19 C.F.R. § 201.4(b)).  While acknowledging that the ITC needs only a "good and sufficient reason" to waive or suspend a rule under Rule § 201.4(b), there was no record evidence providing ITC's intention to invoke its waiver rule.  Id. (quoting 19 C.F.R. § 201.4(b)).  The Court was of the opinion that the reasoning offered on appeal appeared to be "post hoc rationalization."  Id.  The Court concluded that the ITC had two separate occasions to invoke its waiver rule or suspend the regulation—first, when issuing its Notice, and second, after Align argued that the ALJ's order was not an initial determination—and it did not.

The ITC also argued that the ALJ "mistakenly issued" the decision as an order and was required by the Notice to issue an initial determination rather than an order, but the Federal Circuit disagreed.  Rather, the Court noted, the order did not "bear any of the hallmarks of an initial determination" and was not inconsistent with the Notice's "may" language, which gave the ALJ discretion.  Id. at 15-16.  The Court explained, "While we are cognizant that resolving potentially dispositive issues at the outset of the investigation may be advantageous, that goal cannot trump the need for the Commission to follow its own rules and regulations, absent identifying sufficient grounds for waiver or suspension of those rules."  Id. at 16.  Thus, the Court determined, the ITC had exceeded its statutory authority by ruling on the merits of the order prematurely.

Lastly, although not so required, the Court chose to interpret the Consent Order's language, noting that the ITC on remand might easily invoke waiver properly and the issue would return "substantially unchanged."  Id. at 17.  In the interest of efficiency, the Court held there was no established practice of requiring orders to refer to electronic transfers by name, thereby rejecting the ITC's argument.

Thus, the Federal Circuit vacated the ITC's review of the ALJ's order and remanded for further proceedings consistent with the opinion.

Judges: Prost, Chen (author)

[Appealed from ITC]

This article previously appeared in Last Month at the Federal Circuit, August, 2014.

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