IP Reports

Under Section 337 of the Tariff Act of 1930 (“Act”), the U.S. International Trade Commission (“Commission”) has jurisdiction over “articles” imported into the U.S. that infringe intellectual property rights.1 However, the Act does not define the term “articles,” leaving its statutory construction to be determined by the Commission and the courts. In 2014, the Commission construed “articles” to include digital data sets, thereby expanding the scope of its jurisdiction to include electronic transmission of digital data.2 However, a divided panel at the Federal Circuit recently found in ClearCorrect Operating, LLC v. International Trade Commission that “[t]he Commission’s decision to expand the scope of its jurisdiction to include electronic transmission of digital data runs counter to the ‘unambiguously expressed intent of Congress.’”3

By way of background, in 2012, the Commission instituted an investigation relating to Align Technology, Inc.’s (“Align”) complaint against ClearCorrect Operating, LLC (“ClearCorrect US”) and Clear Correct Pakistan, Ltd. (“ClearCorrect Pakistan”), which alleged a violation of Section 337 based on infringement of seven of its patents.4 The technology at issue involved aligners configured to incrementally reposition teeth.5 Specifically, ClearCorrect US scans patient’s teeth, makes digital recreations of the teeth, and electronically transmits the recreations to ClearCorrect Pakistan.6 ClearCorrect Pakistan uses the digital recreations to make digital data sets, which are virtual 3-D models of tooth positions, and then electronically transmits the digital data sets to ClearCorrect US by uploading them to the ClearCorrect US server.7 ClearCorrect US manufactures customizable, plastic aligners based on 3-D prints of the digital data sets.8 Among other issues, the parties disputed whether “articles” includes the digital data sets transmitted from Pakistan to the U.S.9

In construing the term “articles,” the Commission looked to dictionary definitions at the time of the Act’s enactment and concluded that “articles” are not limited to tangible products because an “article” is “an identifiable unit, item, or thing” that can be “traded in commerce or used by consumers.”10 The Commission supported its conclusion by noting that the purpose of Section 337, as indicated by its legislative history, is to prevent every type of unfair act regarding imported articles and that recent developments in Congress show both the acceptance of “digital goods traded in commerce as falling within international trade” and the increased need for digital trade protection in future trade agreements.11 Based on this reasoning, the Commission concluded that “articles” includes electronic transmission of digital data.12

Both parties appealed the Commission’s decision to the Federal Circuit, which reversed, holding that “articles” means “material things,” and “material things” are fundamentally different from electronic transmissions.13 In reaching this holding, the court applied the two-step Chevron test set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.14Under Chevron, the first step is to determine “whether Congress has directly spoken to the precise question at issue,” and the second step is to determine “whether the agency’s answer to the precise question at issue is based on a permissible construction of the statute.”15

Under step one of Chevron, the court looked to the Tariff Act of 1922, the original statute preceding the Tariff Act of 1930.16 The court determined that since “articles” is not defined in the original statute, it must look to contemporaneous dictionaries to determine its ordinary and natural meaning.17 In doing so, the court found that the term “article” is limited to “material things.”18 Second, the court looked to how the term “article” was used throughout Section 337 and found that subsections of Section 337 would be rendered superfluous if “articles” included “intangibles” such as digital data.19 The court provided the forfeiture subsection as an example, noting that electronic transmissions cannot be forfeited because they do not move through border crossings.20 Third, the court looked at the Act in its entirety and found that the exclusion and the cease and desist remedies provided in the Act demonstrate that “articles” includes only “material things.”21 Similar to its analysis of the forfeiture example, the court noted that neither remedy can apply to “intangibles” such as digital data because “intangibles” do not pass through U.S. ports like “material things” and thus cannot be excluded or seized by Customs.22 Lastly, the court concluded that the legislative history of the Act further reinforces its conclusion, finding that although Congress used the term “goods” synonymously with the term “articles” during the passage of the Act, at the time of enactment, the term “goods” had a clear definition limited to “material things.”23

Although the court determined that it need not proceed to step two of Chevron since the definition of “article” was unambiguous, it still addressed the second step.24 In doing so, the court concluded that the Commission’s statutory construction does not warrant deference because the Commission’s analysis of dictionary definitions was incorrect, the Commission failed to correctly analyze the Act’s legislative history, and the Commission wrongly focused on current congressional debates in determining the definition of “articles.”25

Thus, under the Federal Circuit’s decision, the Commission’s jurisdiction does not include electronic transmission of digital data. However, the court’s decision was by a 2-1 split panel, so the Commission, Align, or both may petition to have the decision heard before the Federal Circuit en banc.