Federal Circuit No. 2014-1527

In ClearCorrect v. ITC, the Federal Circuit held that the International Trade Commission ("ITC"), which issued a cease and desist order to stop importations of infringing digital transmissions, exceeded its statutory authority.

ClearCorrect is a producer of "Aligners"--an orthodontic appliance.  Align is the patent owner of a portfolio of patents covering Aligners.  In a Section 337 investigation brought in the ITC, Align alleged that ClearCorrect infringed seven of its patents.  ClearCorrect consisted of two entities that were performing different activities relative to the accused infringement: ClearCorrect US and ClearCorrect Pakistan. 

To produce Aligners, ClearCorrect U.S. first scans physical models of a patient's teeth and creates a digital recreation.  The digital recreation is then electronically forwarded to ClearCorrect Pakistan, which uses software to process the digital recreation of the patient’s teeth into a series of digital models of intermediate tooth positions to be made into incremental aligners worn by the patient.  Subsequently, ClearCorrect Pakistan then transmits the digital models back to ClearCorrect U.S., who then 3D prints the digital models into physical models and create the incremental Aligners in thermoplastic form using the 3D printed models.

The statute at issue is 19 U.S.C. § 1337(a)(1), which provides that ITC shall have jurisdictions to deal with, inter alia, "[u]nfair methods of competition and unfair acts in the importation of articles" (emphasis added).

Here, Align alleged that "articles" in question are, inter alia, the digital models, digital data, and the virtual 3D models being transmitted from ClearCorrect Pakistan to ClearCorrect U.S.

In ITC's ruling, the Commission held ClearCorrect U.S. directly infringed a group of Align's patents.  However, because ClearCorrect U.S.'s infringements occurred within the United States, the Commission found this activity was not within the province of Section 337.  However, the Commission held that ClearCorrect Pakistan was a contributory infringer for some claims as well as infringing by virtue of performing other method claims.  The Commission thus found that the importation of the digital files by ClearCorrect Pakistan was in violation of 19 U.S.C. § 1337(a)(1)(B)(ii); and the Commission determined that it had jurisdiction to issue a cease and desist order to stop the importation of the infringing digital files.

On appeal, a Federal Circuit panel, in a majority opinion issued by Chief Judge Prost, joined by Judge O'Malley, reversed the ITC's finding regarding its jurisdiction over digital transmissions.  Relying on the familiar two-step Chevron framework, the majority found that although the term "Articles" can be traced back to the Tariff Act of 1922.  And though "Articles" was not explicitly defined in the Tariff Act of 1922 itself, the congressional intent was nonetheless unambiguous.  The majority, cited various dictionaries from 1920s and 1930s, found that contrary to the ITC's findings, the term "Articles" meant "material things" that did not cover electronically transmitted digital data.  Further, the majority found that the Tariff Act in its entirety also suggested that "Articles" meant "material things."

Although the majority determined that because the congressional intent was unambiguous and therefore step-two of the Chevron analysis would not be necessary, the majority nonetheless went on and concluded that even under step-two of Chevron analysis, the ITC's interpretation was still unreasonable and unsupported by dictionaries and legislative histories.  Finally, the majority noted that ITC wrongly focused on current congressional debates that had not yet became laws.

 In a concurring opinion, Judge O'Malley asserted that this was an attempt by the ITC to regulate the internet and digital transmission, wherein, it was the opinion of Judge O'Malley that the ITC had no authority, and should not be afforded any deference.  On the other hand, Judge Newman issued a dissent asserting that the ITC was designed to regulate unfair cross-border trades and competitions, and that it should be well within the ITC's authority to regulate the importation of infringing digital goods.

If the panel decision stands, the potential implications of this case are enormous, and could go well beyond the realm of patent infringement to encompass other intellectual property regimes and e-commerce.  Since the ITC is also authorized to act against infringing articles under the copyright law, this case could have significant implication in the ability of content owners to bring actions in the ITC against foreign infringers streaming digital contents into the United States.