United States: Federal Circuit Denies Rehearing On Whether Section 337 Includes Digital Imports

The Federal Circuit debate begun in Suprema, Inc. v. International Trade Commission, 796 F.3d 1338 (Fed. Cir. 2015) (en banc), continued with the court's denial of rehearing en banc in ClearCorrect Operating, LLC v. International Trade Commission, No. 2014-1527(Fed. Cir. Mar. 31, 2016) (Prost, C.J., concurring, and Newman, J., dissenting). In Suprema, the en banc court vacated a panel decision authored by Judge O'Malley, with Chief Judge Prost and judges O'Malley, Lourie, and Dyk dissenting. In ClearCorrect, Chief Judge Prost, with Judge O'Malley concurring and Judge Newman dissenting, authored the panel majority opinion and the concurrence in the denial of rehearing en banc, joined by Judge O'Malley and Judge Wallach. In both cases, Chief Judge Prost and Judge O'Malley sought to narrowly interpret the scope of Section 337 of the Tariff Act of 1930, while Judge Newman sought to broadly interpret its scope.

The language at issue in 19 U.S.C. § 1337(a) in both cases was Section 337(a)(1)'s declaring unlawful "[t]he importation . . . of articles that—infringe a valid and enforceable United States patent or . . . copyright." In Suprema, the panel majority decided that Section 337 did not extend to direct infringement induced by the importer that occurred only after importation because it interpreted "articles that infringe" as requiring that they infringe at the time of importation. Suprema v. International Trade Commission, 742 F.3d 1350, 1352 (Fed. Cir. 2015). The en banc court disagreed, according Chevron deference to the International Trade Commission's (ITC's) interpretation of Section 337. Suprema, 796 F.3d at 1340. In ClearCorrect, the question was whether Section 337's "articles" include digital data electronically transmitted. The panel majority said "no," and this time the en banc court agreed, with Judge Newman dissenting in both instances.

The infringing products were orthodontic appliances known as aligners that incrementally reposition a patient's teeth from an initial tooth arrangement through a plurality of intermediate tooth arrangements to reach a final tooth arrangement. ClearCorrect US scanned physical models of a patient's teeth and created a digital re-creation that it electronically transmitted to its affiliate, ClearCorrect Pakistan, in Pakistan, which then created digital data models of the incremental aligners and transmitted them electronically back to ClearCorrect US in the United States. ClearCorrect US then 3D-printed the digital models into physical models. There is no dispute that ClearCorrect US infringes patent owner/intervenor Align's patents.

The ITC found that ClearCorrect US directly infringed, which did not violate Section 337 because it occurred in the United States, but that ClearCorrect Pakistan did violate Section 337 as a contributory infringer for importing the data models. The ITC further found that ClearCorrect Pakistan made the digital models by practicing Align's method claims in violation of 19 U.S.C. § 1337(a)(1)(B)(ii). Agreeing with the administrative law judge that the ITC had authority over electronically imported data, the ITC issued a cease and desist order.

Writing for the panel majority, Chief Judge Prost reasoned that the court need not accord Chevron deference to the ITC's construction of Section 337 because the statute literally and when viewed in context makes clear that "articles" means "material things" and does not extend to electronic transmission of digital data. ClearCorrect Operating, LLC v. International Trade Commission, 610 F.3d 1283, 1290, 1302 (Fed. Cir. 2015). Acknowledging that the 1930 Tariff Act did not define "articles," the panel majority looked to the 1922 Tariff Act, the earliest predecessor using "articles" as it is used in Section 337, to determine the term's "plain meaning." Relying on contemporaneous dictionaries, i.e., those published around 1922, the panel majority concluded that "articles" is limited to a "material thing" and therefore excludes digital data. Id. at 1293–94.

As to whether "articles" is ambiguous in the context of the statute, the panel majority reasoned that the use of "articles" in other sections of the 1930 Tariff Act reinforces Congress's unambiguous intent for "articles" to mean "material things." Id. at 1294. Specifically, the panel majority reasoned that an exclusion order could not apply to electronic transmissions, nor could they be forfeited or seized in accordance with the statute. The panel majority similarly reasoned that other provisions of the statute could not apply to electronic transmissions.

Having concluded that "articles" in Section 337 is unambiguous, the panel majority reasoned that it did not need to address the reasonableness of the ITC's interpretation. Id. at 1299–1300. It nevertheless concluded that the ITC's interpretation of "articles" was unreasonable because it failed to properly analyze the plain meaning of "articles," failed to properly analyze the statute's legislative history, and improperly relied on congressional debates. Id. at 1300. The panel majority found the ITC's definition of "articles" as "something that is traded in commerce" unsupported by the dictionary definitions the ITC cited, and that although the legislative history of the original 1922 statute stated that it was "broad enough to prevent every type and form of unfair practice," that was limited to such practices "in the importation of goods," which the panel majority interpreted, like "articles," to mean "material things." The panel majority therefore did not defer to the ITC's interpretation of "articles." Finally, despite finding Congress's intent regarding "articles" unambiguous, it reasoned that "if we are wrong," Congress should clarify the statute.

Although agreeing with Chief Judge Prost's ruling if Chevron applied, Judge O'Malley, concurring, considered this an "extraordinary" case, calling for Chevron "step zero," where the Chevron framework does not apply "because it is clear Congress could not have intended to grant the agency authority to act in the substantive space at issue." Id. at 1302–03 (O'Malley, J., concurring). Judge O'Malley reasoned that if Congress intended the ITC to have jurisdiction "over all incoming international Internet data transmissions[,] . . . one of the most important aspects of modern-day life, Congress surely would have said so expressly." Judge O'Malley concluded, "[T]he responsibility lies with Congress to decide how best to address these new developments in technology." Id. at 1303 (citing Microsoft v. AT&T Corp., 550 U.S. 437, 458–59 (2007); Gottschalk v. Benson, 409 U.S. 63, 73 (1972)).

Judge Newman dissented from both the panel majority opinion and the denial of rehearing en banc. She relied on the en banc court's comment in Suprema that the legislative history of Section 337 "consistently evidences Congressional intent to vest the Commission with broad enforcement authority to remedy unfair trade acts." Id. at 1900 (Newman, J., dissenting) (citing Suprema, Inc. v. International Trade Commission, 796 F.3d 1338, 1350 (Fed. Cir. 2015)). Although Judge Newman found nothing in Section 337 excluding from "articles" intangible items such as electronic transmissions of data, her difference with her colleagues appears to be philosophical. In Chief Judge Prost's opinion concurring in the denial of rehearing en banc, she wrote "[T]he dissent is wrong to suggest that it falls on us to change the law in order to address changing times. . . . Any action on that front must be taken by Congress, not us." ClearCorrect Operating, LLC v. International Trade Commission, No. 2014-1527, at 3 (Fed. Cir. Mar. 31, 2016) (citing Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 430–31 (1984) ("[A]s new developments have occurred in this country, it has been the Congress that has fashioned the new rules that technology made necessary.")). Judge Newman, on the other hand, wrote:

The Supreme Court counsels that statutory law should be adapted to its legislative purpose, in the context of advances in technology. In Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390 (1968), the Court considered "a statute that was drafted long before the development of the electronic phenomena with which we deal here," stating that "[w]e must read the statutory language . . . in the light of drastic technological change." Id. at 395–96.

The Court observed in Twentieth Century Music Corp. v. Aiken, 422 U.S. 151 (1975), that although Congress did not revise the Copyright Act of 1909 following the advent of radio (and television), "copyright law was quick to adapt to prevent the exploitation of protected works through the new electronic technology." Id. at 158. The Court observed the "ultimate aim" of the copyright law "to stimulate artistic creativity for the general public good," and stated that "[w]hen technological change has rendered its literal terms ambiguous, the Copyright Act must be construed in light of this basic purpose." Id. at 156.

Id. at 6 (Newman, J., dissenting). Thus, Judge Newman reasoned, "The Commission reasonably concluded that Congress did not intend to exclude new fields of technology, and inventions not yet made, from a statute whose purpose is to support invention." Finally, Judge Newman relied on the Supreme Court's invocation in Diamond v. Chakrabarty, 447 U.S. 303 (1980), of Marbury v. Madison, 5 U.S. 137, 177 (1803), stating:

"[O]nce Congress has spoken it is 'the province and duty of the judicial department to say what the law is.'" Id. at 315. The Court stated that "our obligation is to take statutes as we find them, guided, if ambiguity appears, by the legislative history and statutory purpose." Id.

Id. at 21 (quoting Diamond v. Chakrabarty, 447 U.S. 303, 315 (1980)).

It remains to be seen whether the Supreme Court resolves this debate. In the meantime, the Federal Circuit has imposed a serious limitation on the reach of Section 337.

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