ITC Has No Jurisdiction to Block Infringing “Electronic Transmissions”

On November 10, a panel of the Federal Circuit reversed a landmark ITC decision blocking the importation of digital information that infringes a patent. This decision has potential ramifications for a wide-range of companies ranging from content providers, service providers, Internet companies, and “big data” companies. This client update provides an overview of the Federal Circuit’s decision on ClearCorrect Operating, LLC v. ITC & Align Technology, Inc. and additional insights into the decision.

The case generated high interest and dueling amicus briefs from industry players. The ruling will likely be considered a blow to content owners and creators who had hoped that the ITC’s expanded jurisdiction would cover importation of digital material that infringes their copyrights. For example, in amicus briefing, the Motion Picture Association and the Recording Industry Association had urged the court to affirm the ITC’s decision so that the ITC could address “[copyright] infringement losses . . . from illegal downloads and illegal streaming.” On the other side, the Internet Association (representing the interests of companies including Google, Netflix, Salesforce, and Yahoo!) argued in its amicus brief that allowing the ITC to block importation of data could threaten the “[e]fficient operation of a global network” that “requires that particular types of data be stored, processed, and served in identical ways throughout the world, without regard for country borders.” (See Internet Assoc. amicus brief at 4.)

As the amici illustrate, the impact of this case is potentially significant. For content providers, this decision potentially shuts off an inviting forum to adjudicate copyright infringement issues arising from the streaming, transfer, and dissemination of digital content. This decision also raises the question of whether a patent owner could effectively enforce its patent rights here in the U.S. when an alleged infringer intentionally locates one step of the manufacturing process overseas. For Internet and “big data” companies, this decision temporarily stalls the ITC and the U.S. Customs Officers from becoming the policemen of Internet traffic and avoids the thorny issue of how the ITC and U.S. Customs could effectively enforce a cease-and-desist order against a foreign entity. Unfortunately, because the case may be headed towards an en banc rehearing in light of the Federal Circuit’s recent en banc opinion[1] holding that courts must apply Chevron deference to the ITC’s interpretation of its authorizing statute, the ramification of this case may yet again change depending on what transpires.

A summary of the case is below, and the Federal Circuit’s full opinion can be found here.

Facts

ClearCorrect makes and sells orthodontic “aligners” that fit over a patient’s teeth and gradually straighten them. ClearCorrect first makes a mold of the patient’s teeth, scans the mold, then sends the scanned data to an affiliated company in Pakistan, CCPK (i.e. ClearCorrect Pakistan). CCPK uses the data from the scan to plot projected movements of the patient’s teeth from their crooked position to a straight position. It sends the data for these plotted movements back to ClearCorrect in Texas, which uses the data to create sets of aligners for the patient’s use.

Align first sued ClearCorrect for patent infringement in 2011 in Texas district court. That lawsuit was dismissed after Align granted ClearCorrect a covenant not to sue. On April 5, 2012, the ITC initiated an investigation based on Align’s complaint that ClearCorrect infringed seven other patents.

ITC Proceedings & Order

In the ITC proceedings, an Administrative Law Judge found that ClearCorrect infringed six of the seven asserted patents and recommended that the Commission issue cease and desist orders. The full commission reviewed the recommendation and found that ClearCorrect infringed five of the asserted patents.^[2] It ordered ClearCorrect to cease and desist “importing (including through electronic transmission)” the “digital models, digital data, and treatment plans for use in making incremental dental positioning adjustment appliances or the appliances therefrom.” (Apr. 3, 2014 ITC Order.)

The Panel Decision and the Impact of Suprema

The Federal Circuit oral argument occurred on August 11, 2015—just one day after the court issued its opinion in Suprema, in which the en banc court reversed a panel decision and held that the ITC’s interpretations of its authority under section 337 are entitled to deference under the Chevron test. (See Suprema opinion.)

The ClearCorrect panel included Judges Prost and O’Malley, both of whom dissented from the Suprema holding. The judges hinted at their views in ClearCorrect in that dissent when they wrote: “The word ‘articles’ is not ambiguous—it has a well-defined legal definition. [citations omitted] The word connotes a physical object.” (Suprema dissent at 4 (emphasis added).) The judges repeated this view in the ClearCorrect opinion, finding that “it is clear that ‘articles’ means ‘material things,’ whether when looking to the literal text or when read in context ‘with a view to [the term’s] place in the overall statutory scheme.’” (ClearCorrect opinion at 3 (citing Chevron).)

The majority opinion by Judges Prost and O’Malley applies the Chevron test (as required by Suprema), but finds that the ITC’s “decision to expand the scope of its jurisdiction to include electronic transmissions of digital data runs counter to the ‘unambiguously expressed intent of Congress.’” (Id. at 3 (quoting Chevron).) In one notable portion of the opinion, the majority finds that the ITC misquoted legislative history in both its opinion and its appellate briefing, removing the key phrase “unfair methods of competition in the importation of goods” from a Senate Report that it relied on to support its interpretation of section 337. The majority calls this omission “highly misleading,” and it relies on this misquotation and another citation problem in the ITC’s opinion to conclude that the opinion suffers from a “systematic pattern of the Commission picking the wrong conclusion from the evidence.” (ClearCorrect opinion at 34–35.)

Considering the turmoil caused by the Suprema ruling and the fact that ClearCorrect is the first opinion applying its holding, it seems likely that this case is headed for a rehearing en banc.