United States: The International Trade Commission Has No Authority To Prevent Infringing Digital Data Files From Being Electronically Imported Into The United States

Abstract

In a split 2-1 panel decision, the Federal Circuit ruled that the International Trade Commission's jurisdiction to remedy unfair acts involving the importation of "articles" extends only to material things, and that it could not block the electronic importation of digital data files used to manufacture orthodontic appliances in the United States.

In a recent split 2-1 panel decision in ClearCorrect Operating, LLC v. International Trade Commission,1 the Federal Circuit found that the International Trade Commission (ITC) had no jurisdiction to remedy patent infringement by blocking infringing digital data files from being imported into the United States because the ITC's jurisdiction is limited to tangible "articles."

Background

ClearCorrect companies in the U.S. and Pakistan work together in the following way to manufacture orthodontic appliances called aligners for incrementally repositioning teeth: 1) ClearCorrect U.S. scans physical models of a patient's teeth to create a digital recreation of the patient's initial tooth arrangement; 2) ClearCorrect Pakistan then uses the recreation to create digital data models in Pakistan; 3) ClearCorrect Pakistan then transmits those digital data models electronically to ClearCorrect U.S; and 4) ClearCorrect U.S. subsequently 3D prints the digital models into physical models, which are used to manufacture the aligners in the United States.

Align Technology Inc. filed a patent infringement complaint with the ITC against ClearCorrect, and following a hearing before an Administrative Law Judge and review by the ITC, the ITC ruled that ClearCorrect U.S. directly infringed, that ClearCorrect Pakistan contributed to the infringement, and that the ITC had jurisdictional authority over electronically-imported data.

The Federal Circuit Decision

On appeal, the Federal Circuit only considered the ITC's jurisdiction over electronically-imported data, focusing on whether the term "articles"—used in the relevant statute (19 U.S.C. § 1337 ("Section 337")) to define the scope of the Commission's jurisdiction—included electronic data. The majority found that the deferential Chevron framework applied, under which agency interpretations govern in the absence of unambiguous statutory language to the contrary or unreasonable resolution by the agency of language that is ambiguous. In a lengthy analysis, the majority ruled that the statutory language of Section 337, when viewed in context and with an eye towards the statutory scheme, is clear that "articles" means "material things" and does not include electronic transmission of digital data.

Because "articles" is not defined in the statute, the majority first sought to determine its ordinary and natural meaning. Reviewing the numerous dictionary definitions considered by the ITC—including those contemporaneous to the passing of the original statute and more modern ones—the majority found that the ordinary meaning of the term "articles" is "material things."

The majority then considered the use of "articles" throughout Section 337. In this analysis, the majority concluded that if "articles" included intangibles, numerous Section 337 subsections would be rendered superfluous including, for example, a subsection providing for the forfeiture or seizure of articles, which can only apply to physical items. The majority then considered the Section 337 statutory scheme generally, noting three aspects of Section 337 to support an interpretation limiting "articles" to "material things": 1) that the original version of Section 337 only provided exclusion as a remedy—a remedy that can apply only to tangible articles; 2) that the introduction of cease and desist letters in 1974 was intended to provide a lesser remedy to exclusion orders, not broaden the ITC's jurisdictional authority; and 3) that the original and updated Harmonized Tariff Schedules limit articles to tangibles.

The majority also noted further support for its interpretation based on two legislative events: 1) that at the time of passage of the statute, Congress used "articles" synonymously with the term "goods"—the ordinary meaning of which is also limited to material things; and 2) that that the Omnibus Trade and Competitiveness Act of 1988, which for the first time expanded the statute to explicitly cover IP infringement, did not include language increasing the scope of the term "articles."

Although it found Congress's expressed intent regarding the term "articles" to be unambiguous, the majority further explained that even if it were ambiguous, the ITC's interpretation of "articles" as including intangibles was unreasonable. The majority relied in large part on the ITC's misquoting of a 1922 Senate Report in its briefing to the Federal Circuit, which it quoted as stating that "[t]he provision relating to unfair methods of competition is broad enough to prevent every type and form of unfair practice . . . ." The actual quote, however, included an express reference to goods: "The provision relating to unfair methods of competition in the importation of goods is broad enough to prevent every type and form of unfair practice . . . ." According to the majority, the phrase "in the importation of goods" clearly limited the ITC's authority. The majority also found that the ITC failed to address dictionary definitions contrary to its position and incorrectly considered current legislative debates.

A dissenting opinion by one panel member agreed with the ITC's interpretation that "articles" in the statute extends to digital data. The opinion relied on legislative history indicating that Section 337 was intended to provide broad protection to industries of the United States and that Section 337 provides for the exclusion of infringing subject matter without limitation and should extend to all infringing imported "articles of commerce." Although digital articles did not exist when the statute was enacted, the dissenting opinion found no grounds for imputing intent in the statute to omit unforeseen, later discovered technologies and pointed out that under the majority's interpretation, the ITC may block infringing data when it is carried on a disc or other storage media, a system the dissenter believed "locked the International Trade Commission into technological antiquity."

Strategy and Conclusion

The Federal Circuit decision preventing the ITC from blocking infringing electronic data from entering the U.S. has a wide impact on many technologies and industries. For example, foreign companies that create digital models for 3D printable products may electronically transmit such data into the U.S. and manufacture those products via 3D printing without being subject to the ITC's jurisdiction. In addition, because the ITC's authority extends beyond patent infringement, the case attracted wide interest among numerous entities with interests related to the regulation of international internet traffic, including the Internet Association and the Motion Picture Association of America. Given the importance of the case, the ITC may ask the full Federal Circuit to rehear the case, and Congress may be sparked to take up legislation regarding the meaning of "articles" under Section 337.

Footnotes

1 The Federal Circuit's decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2015/ClearCorrectOperatingLLCvInt'lTradeComm'n14-1527.pdf.

Previously published in LES Insights

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