Digital Models: ITC Stays Remedial Order Pending Appeal

For the first time in its history, the ITC has issued a stay of a remedial order in an investigation pending appeal to the Federal Circuit. On June 11, 2014, the ITC stayed the remedial order in Certain Digital Models, Inv. No. 337-TA-833, pending appeal. In its earlier opinion of April 3, 2014, the Commission had affirmed the ITC’s jurisdiction over electronic transmissions as imported articles and directed respondent ClearCorrect (maker of dental repositioning appliances) to cease its digital importation of infringing data files over the Internet (see post of April 7, 2014). That remedy will now be stayed until the Federal Circuit decides the appeal.

In its Opinion of June 11, 2014, the Commission granted ClearCorrect’s motion for a stay pursuant to Section 10(d) of the Administrative Procedures Act.  E.g., 5 U.S.C. § 705.  The Commission stated that the standard for a stay of judicial proceedings is the same four-part test used to review preliminary injunctions, as set forth by the Federal Circuit in Standard Havens Prods., Inc. v. Gencor Indus., Inc., 897 F.2d 511, 512 (Fed. Cir. 1990).  However, where the stay is sought at the agency level, the futility of the “likelihood of success” analysis warrants the application of another test, under which a stay is appropriate when the agency “‘has ruled on an admittedly difficult legal question and when the equities of the case suggest that the status quo should be maintained.’”  Opinion at 5, citing Agricultural Tractors Under 50 Power Take-Off Horsepower, Inv. No. 337-TA-380, Comm’n Op. Denying Resp’ts’ Pet. For Reconsideration and Mot. For Relief Pending Appeal at 10 (Apr. 25, 1997).

The Commission noted that it had already established the difficulty of the legal question in the investigation – whether electronically transmitted information qualifies as an imported “article” subject to ITC jurisdiction under Section 337.

Under the second part of the test, the Commission balanced the evidence it received regarding the relative harms to the parties.  Id. at 7-10.  ClearCorrect submitted evidentiary support for its claims that its Pakistani operations would “almost certainly” be ruined if the remedial orders went into effect, as those facilities would have to discontinue operations or drastically reduce their workforce long before the appeal was decided.  Id. at 7.

Complainant Align and the ITC investigative attorney argued that ClearCorrect might have alternatives in place to avoid disruptions to its business.  Align further stated that the market for dental repositioning products was essentially a two-supplier marketplace, so any sales made by ClearCorrect were sales lost by Align.  Id. at 8.

The Commission found that the balance of hardships tilted in favor of ClearCorrect, noting that Align had a pending district court action that could address any economic loss suffered by Align resulting from a stay.  Id.  Moreover, although Align raised issues regarding price erosion and reputational harm, it did not submit sufficient support for those arguments, and those arguments raised unfair competition issues, rather than the patent infringement issues before the Commission.  Id. at 9.

With respect to the public interest factor, the Commission found that it did not favor either side.  Id. at 9-10.  The public interest in enforcement of patents was counterbalanced by the potential impact of the Commission’s legal determination on future investigations and the need for guidance from the Federal Circuit on the important question at hand.  Id.

Finally, the Commission attempted to forestall the potential tsunami of similar motions to stay remedial orders in the ITC, observing that the ITC had never before granted such a motion and that most circumstances do not justify delay in granting the relief to which a successful complainant is entitled under section 337.  Id. at 10-11.