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IP Alert: Federal Circuit Rules ITC Has No Jurisdiction over Importation of Digital Signals

On November 10, 2015, in ClearCorrect Operating, LLC, et al. v. International Trade Commission and Align Technology, Inc., the Court of Appeals for the Federal Circuit held that the International Trade Commission (ITC) has no authority to regulate digital signals under 19 U.S.C. § 1337(a). Reversing a decision of the ITC, the court determined that the term “articles,” as used in this statute, encompasses only tangible goods.

The Tariff Act of 1930 grants the ITC authority to adjudicate cases involving the importation of “articles” as stated in 19 U.S.C. § 1337(a). Generally, section 1337 allows the ITC to issue decisions prohibiting the importation of goods that infringe certain U.S. intellectual property rights, including patents and copyrights.

Align Technology, Inc., the intervenor in the ITS case, is the owner of seven patents directed to orthodontic appliances known as aligners. A series of aligners are used to correct tooth misalignment by incrementally repositioning a patient’s teeth. ClearCorrect Operating, LLC (“ClearCorrect US”) and ClearCorrect Pakistan (Private), Ltd. (“ClearCorrect Pakistan”) are competitor companies that also produce aligners. ClearCorrect US scans models of a patient’s teeth and transmits the information to ClearCorrect Pakistan, which designs a series of digital models of aligners. ClearCorrect Pakistan then transmits the digital models to ClearCorrect US, which then makes physical aligners from the digital models.

Align filed a complaint with the ITC alleging that ClearCorrect US and ClearCorrect Pakistan were in violation of section 1337. The ITC instituted an investigation into the importation of the allegedly infringing “articles,” namely, the digital models transmitted by ClearCorrect Pakistan. An administrative law judge (ALJ) at the ITC found various claims in Align’s patent portfolio infringed and further determined that the digital models fell within the purview of the ITC’s authority to regulate the importation of “articles” pursuant to section 1337.

The parties filed petitions for review of decision with the ITC. The ITC determined that ClearCorrect Pakistan’s activities were an infringement of Align’s patent claims and a violation of section 1337. The ITC further agreed with the ALJ’s determination that the term “articles” includes electronic data.

The ClearCorrect parties appealed ITC’s decision to the Federal Circuit. Because the ITC’s decision involved an interpretation of statutory language—“articles” in section 1337—the Federal Circuit was inclined to give deference to the ITC’s interpretation. Ultimately, though, they rejected the ITC’s interpretation of the term “articles” in the statute as encompassing electronic data. The court found that the ordinary and natural meaning of the term includes only tangible things. The court pointed out that the use of “articles” in other sections of the Tariff Act of 1930 indicated that Congress unambiguously intended for “articles” to mean material things. In addition, section 1337(i) explains that articles imported in violation of section 1337 are subject to seizure, and section 1337(i)(3) directs the Secretary of the Treasury to notify ports of entry of the offending articles so their entry can be stopped. The Federal Circuit determined that a definition of “articles” that includes electronic data would render these sections nonsensical since electronic data can neither be seized nor does it enter via ports of entry. Finally, the court determined that a definition of “articles” limited to material things accords with the overall statutory scheme of the Tariff Act of 1930. The Federal Circuit determined that the remedies provided by Congress in the Tariff Act of 1930, such as exclusion of the articles from entry into the U.S., indicates Congress meant for “articles” to mean only material things. The court rejected the ITC’s reliance on the legislative history of the implementing statute, observing that the ITC had in fact misquoted the Senate report upon which it relied: “Because the Commission uses this misquote as its main evidence that the purpose of the act was to cover all trade, independent of what form it takes, the Commission’s conclusion regarding the purpose of the Act is unreasonable.”

The decision was fragmented, with both a concurring opinion and a dissent in the three-judge panel. Judge O’Malley, concurring in the court’s opinion, stated that because Congress unambiguously had not provided authority for the ITC to regulate Internet transmissions, the complete analysis presented in the court’s opinion was not necessary. Judge Newman dissented from the opinion and took issue with, among numerous other things, the majority’s determination that section 1337 applies only to the kinds of technology that existed when the section was drafted.

The decision generated a number of amicus briefs. Among those were briefs from industry groups who represent copyright holders who supported the ITC’s decision. Such groups undoubtedly were motivated by the possibility of harnessing the jurisdiction of the ITC to stop the importation of infringing copyrighted works in digital form, such as pirated movies. Absent reversal of this decision by the en banc court or by the Supreme Court, though, it does not appear this will be a viable avenue of approach. This may represent the most significant aspect of the decision, since patent cases that involve the “importation” of a digital signal are likely to be somewhat rare.

For more information on this ruling, please contact Fitch Even partner Allen E. Hoover.

--Written by Fitch Even attorney Christian C. Damon

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