On November 10, 2015, a divided Federal Circuit panel issued a decision in ClearCorrect Operating, LLC v. International Trade Commission,1 concluding that the International Trade Commission (ITC or Commission) lacks jurisdiction over electronic transmissions of digital data.  The majority’s analysis, which was authored by Chief Judge Prost and joined by Judge O’Malley, turned on the definition of the word “articles” in the statute that defines the ITC’s jurisdiction.  The majority concluded that the ITC erred in broadly construing Section 337 of the Tariff Act of 1930 to include digital data: “‘Articles’ is defined as ‘material things,’ and thus does not extend to electronic transmissions of digital data.”2

As we reported in April, the Commission sided with Align Technology, the complainant at the ITC, and issued cease and desist orders directed to ClearCorrect’s infringing electronic transmissions after concluding that electronic files are “articles” within the meaning of Section 337 and that the transmission of those electronic files constituted an importation.  In June, we chronicled the unusual decision by the ITC to stay its cease and desist orders against ClearCorrect pending review at the Federal Circuit.

On appeal, the Federal Circuit applied the Chevron standard to the Commission’s interpretation of “articles,” ultimately concluding that “articles” unambiguously means “material things.”  Chevron’s test consists of two steps.  First, the statute is analyzed to determine if Congress has directly spoken to the precise question at issue.  If so, the inquiry ends and Congress’s unambiguous intent must be followed.3  If Congress has not directly spoken on the issue, the question then becomes whether the agency’s answer “is based on a permissible construction of the statute.”4  An agency’s interpretation of an ambiguity in a statute it administers receives deference under Chevron.

The majority concluded that “articles” is not ambiguous under Chevron step one by referencing several dictionaries dating back to when the word “articles” was first introduced into the Tariff Act in 1922, other uses of the word “articles” in Section 337, and the legislative history of the statute.  Although it did not need to proceed in view of its conclusion that there is no ambiguity, the majority also determined that the Commission’s interpretation was unreasonable under the second step of the Chevron analysis because the broad scope of the Commission’s definition exceeded the dictionary definitions upon which it relied.5

Judge O’Malley’s concurring opinion agreed that the Commission’s interpretation of Section 337 was not entitled to deference, but contended that the Chevron framework was inapplicable in the first place.  She stressed that courts only need to give deference to an agency’s interpretation of its governing statute under Chevron if Congress has delegated authority to that agency to act in the substantive space at issue — in this case, she identified the internet as that space.  In Judge O’Malley’s view, Congress never authorized the ITC to regulate internet transmissions, and thus deference to the Commission’s interpretation of “articles” was not warranted.6

Judge Newman authored a dissenting opinion, criticizing the majority for curtailing the ITC’s jurisdiction in a way that prevents it from effectively carrying out its congressional mandate.  If digital information is patentable subject matter and digital information is capable of infringing a patent, then, according to Judge Newman, “[t]here is no basis for excluding imported infringing subject matter from Section 337, whatever the form of the subject matter.”7  Judge Newman also cited precedent supporting the notion that Congress intended the term “article” in Section 337 to be “all-encompassing.”8

The outcome in this case should not have been unanticipated because the majority tipped their hand earlier this year in a dissenting opinion in Suprema, Inc. v. International Trade Commission9 that was authored by Judge O’Malley and joined by Chief Judge Prost.  Judge O’Malley’s dissent in Suprema outlined their position on the exact interpretational issue presented by ClearCorrect by stating, “The word ‘articles’ is not ambiguous—it has a well-defined legal definition.  The word connotes a physical object.”10

Although it is not certain, it appears likely that Align Technology will petition the Federal Circuit to hear the case en banc.  Perhaps a similar concern that Judge Reyna expressed toward the en banc review in Suprema — a hole that this decision arguably creates in the ITC’s jurisdiction when it comes to excluding infringing products that enter the United States via the internet — will draw the Federal Circuit into a second look at the scope of the definition of “articles” in Section 337.