In ClearCorrect Operating, LLC v International Trade Commission(1) a split panel of the Federal Circuit held that the International Trade Commission (ITC) does not have the authority to stop the import of electronic transmissions over the Internet into the United States.

Background

19 USC § 1337 – often referred to as Section 337, its original section in the now-amended Tariff Act of 1930 – defines and prohibits various unfair practices in import trade. Such prohibited unfair acts include the import, sale for import or sale within the United States after import of "articles that infringe" a valid and enforceable US patent, trademark or copyright. Section 337 gives the ITC the authority to investigate alleged unfair acts and, where appropriate, issue exclusion orders directed to Customs and Border Protection (CBP) to exclude infringing articles from entry into the United States. The ITC also may issue cease and desist orders directing persons involved in unfair acts to stop their activities. The potential to bar imports of infringing articles as a remedy prompts many patentees to bring investigations before the ITC in addition to or in lieu of a district court action.

ClearCorrect arose from a dispute between Align Technology, Inc and US company ClearCorrect Operating, LLC, along with its Pakistani affiliate, ClearCorrect Pakistan (Private), Ltd. Align held seven patents covering a system that used a number of different orthodontic aligners to incrementally reposition a patient's teeth. The system included creating digital data sets, which represented the patient's initial tooth arrangements and successive tooth arrangements that reached the desired repositioning, and fabricating the different aligners based on the digital data sets.

ClearCorrect made aligners through cooperation between ClearCorrect US and ClearCorrect Pakistan. ClearCorrect US scanned impressions of a patient's teeth to create a digital data set representing the patient's initial tooth arrangement. ClearCorrect US sent this digital data set over the Internet to ClearCorrect Pakistan, which processed the digital data set and created other digital data sets corresponding to successive tooth arrangements. ClearCorrect Pakistan then sent the digital data sets that it created back to ClearCorrect US, again over the Internet. ClearCorrect US then used three-dimensional printing to fabricate the aligners based on the digital data sets.

ITC investigation

Based on a complaint filed by Align the ITC instituted an investigation of ClearCorrect's activities. The accused articles on which the ITC's Section 337 jurisdiction was based were transmissions of the digital data sets from Pakistan to the United States.

During the investigation, Align's asserted claims were split into four groups based on claimed subject matter. At issue in the ClearCorrect appeal were Groups I and II, which contained certain claims of US Patent 6,217,325, 6,705,863, 6,626,666 and 8,070,487 and were directed to methods of forming dental appliances (Group I) and methods of producing digital data sets (Group II).(2)

On April 3 2014 the ITC found:

  • the Group I patent claims to be directly infringed by ClearCorrect US and contributorily infringed by ClearCorrect Pakistan; and
  • the Group II patent claims to be directly infringed by ClearCorrect Pakistan.

The ITC determined that ClearCorrect's transmissions of digital data sets into the United States – electronic transmissions over the Internet, and not transfers on a physical medium such as compact disk or thumb drive – were imports in violation of Section 337 and issued cease and desist orders against ClearCorrect US and ClearCorrect Pakistan. Because Align had not sought an exclusion order, the ITC did not consider whether one was warranted.

Both Align and ClearCorrect appealed the ITC's decision to the Federal Circuit. The primary issue in ClearCorrect's appeal was whether the digital data transmitted from Pakistan to the United States by ClearCorrect was an 'article' within the meaning of Section 337. If the digital data was not, ClearCorrect's activities could not amount to an unfair act and the ITC would lack jurisdiction to investigate such activities and issue a remedy.

ITC jurisdiction is limited to "material things"

In a two-to-one panel decision the Federal Circuit reversed the ITC's decision. The opinion for the court, written by Judge Prost (with Judge O'Malley concurring), held that the term 'articles' – as used in Section 337 – means "material things" and that electronic transmissions of data are not articles that can give rise to ITC jurisdiction. In reaching its holding the court found that not only was there no ambiguity in the meaning of 'articles' in Section 337, but even if there were ambiguity in the term, the ITC had erred in determining that its meaning was broad enough to include electronic transmissions.

The court conducted its analysis under Chevron, USA, Inc v Natural Res Def Council, Inc,(3) which sets out the well-known two-step process for reviewing agency decisions:

  • first review the text of the enabling statute for ambiguity; and
  • then review the reasonableness of the agency's determination with respect to that ambiguity, with deference to the agency.

Under the first Chevron step the court found that there was no ambiguity in the meaning of 'articles'. Looking to the original statute – the Tariff Act 1922, which preceded the Tariff Act of 1930 – while there is no definition of 'articles' within the statute itself, a review of contemporaneous dictionaries showed that the term is limited to "material things". Moreover, the US Tariff Commission, the predecessor agency to the ITC, published its own dictionary at the time which defined the term 'articles', at its broadest meaning, to be commodities in general, whether manufactured or raw materials.

The court also found that Section 337 uses the term 'articles' in a way that unambiguously expresses Congress's intent for it to mean "material things". The statute allows for the seizure and forfeiture of articles, but an electronic transmission can be neither seized nor forfeited. In addition, the statute calls for the secretary of the Treasury to "notify all ports of entry" on the "attempted entry of articles" subject to an exclusion order. The court found that an electronic transmission is not subject to an attempted entry through a port, nor can it be intercepted at a port, as contemplated by the statute.

The court also looked to the remedies provided by Section 337 for further evidence of a lack of ambiguity. Originally, the statute provided only exclusion orders; cease and desist orders were added later, in 1974. However, the court found an exclusion order is not an effective remedy against intangible things (eg, electronic transmissions) because they do not pass through US ports and thus cannot be excluded by CBP.

Despite finding no ambiguity, the court proceeded to the second step of Chevron and held that the ITC was unreasonable in finding electronic transmissions to be articles. For one, the ITC did not review enough contemporaneous definitions, and those that it relied on were imprecise. The court also took the ITC to task for failing to analyse properly the legislative history of the Tariff Act, including misquoting a Senate report and improperly relying on current legislative action and debate.

Panel split

In concurrence, O'Malley agreed with the majority opinion but pointed out that she would have omitted the Chevron test altogether. Relying on King v Burwell,(4) she called this an extraordinary case where the search for a statutory ambiguity was not even warranted, because it was clear that Congress did not intend to delegate regulation of the Internet to the ITC.

Judge Newman in dissent took an opposite view. She agreed with the ITC's review of the evidence and its statutory construction. However, in her view Section 337 does not distinguish between the import of digital data electronically and the import of physical media containing digital data, and thus she found the majority opinion anomalous in this respect.

Comment

Under the ClearCorrect panel decision the ITC cannot investigate circumstances when foreign and domestic parties cooperate to produce a product in a way where only data is electronically transmitted into the United States, thereby avoiding import of a material thing. It may be that the ITC will seek to have the case heard before the Federal Circuit en banc and possibly also the Supreme Court. Thus, the panel decision may not be the last word.

For further information on this topic please contact Jonathan Berschadsky or Seth Boeshore at Fitzpatrick, Cella, Harper & Scinto by telephone (+1 212 218 2100) or email (jberschadsky@fchs.com orsboeshore@fchs.com). The Fitzpatrick, Cella, Harper & Scinto website can be accessed at www.fitzpatrickcella.com.

Endnotes

(1) Slip op 2014-1527 (Fed Cir November 10 2015).

(2) Groups III and IV, which are directed to treatment plans and methods of producing dental appliances, are part of a companion case currently pending before the Federal Circuit – Align Technology, Inc v International Trade Commission, 2014-1533.

(3) 467 US 837 (1984).

(4) 135 S Ct 2480 (2015).

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