Digital Models: Federal Circuit Hears Arguments Re: ITC Jurisdiction Over Electronic Transmissions

The Federal Circuit heard oral arguments on August 11 regarding the International Trade Commission’s decision in the Digital Models investigation, where the ITC asserted it had jurisdiction to enjoin electronic data transmissions into the U.S. that infringe certain U.S. patents.  The appeal in ClearCorrect Operating, LLC v. ITC, No. 2014-1527, which was argued before Chief Judge Prost and Judges Newman and O’Malley, poses the question of whether the ITC’s authority to block the importation of infringing articles is limited to physical items of commerce or extends to electronic data transmissions as well.  Should the court uphold the ITC’s jurisdiction over electronic transmissions, the ITC could become an important venue for patent infringement disputes involving digital data and computer software.

Background

In Certain Digital Models, Digital Data and Treatment Plans for Use in Making Incremental Dental Positioning Adjustment Appliances, the Appliances Made Therefrom, and Methods of Making the Same, Inv. No. 337-TA-833 (“Digital Models”), complainant Align Technologies, manufacturer of the Invisalign® dental repositioning appliances (plastic molds worn over the teeth), accused competitor ClearCorrect of violating Section 337 of the Tariff Act of 1930 by electronically importing into the U.S. digital models of dental molds that infringed certain Align patents.  Specifically, ClearCorrect sent electronic files with patients’ teeth measurements to its Pakistani affiliate, which then generated data sets reflecting digital models of the dental molds and electronically transmitted them from Pakistan back to the United States. The Commission ruled that the data sets transmitted by ClearCorrect Pakistan over the Internet qualified as “articles” under 19 U.S.C. § 1337(a)(1)(B) and issued cease and desist orders directing ClearCorrect to discontinue its digital importation of the infringing files.  Both Align and ClearCorrect appealed various aspects of the Commission’s ruling.

The Commission’s decision regarding the applicability of Section 337 to electronic transmissions originating abroad has received considerable attention, with amicus briefs filed in the Federal Circuit on behalf of the Motion Picture Association of America, the Recording Industry Association of America, and the Association of American Publishers in support of the Commission’s decision; and on behalf of Public Knowledge, the Electronic Frontier Foundation, the Business Software Alliance, the Internet Association, Nokia Corporation, and Nokia USA Inc. in opposition to the Commission’s decision.

ClearCorrect v. ITC – The Dispute over “Articles”

The argument focused on the scope of the ITC’s jurisdiction and whether electronic transmissions are encompassed by the term “articles” as it is used in Section 337.

ClearCorrect argued that Congress intentionally elected not to include electronic transmissions in the ITC’s jurisdiction.  ClearCorrect emphasized that telegraphs existed when Congress drafted Section 337, yet that section does not specifically reference such electronic transmissions.  Counsel argued that there is no functional difference between today’s electronic transmissions and those that existed when Section 337 was drafted (other than data throughput).  Counsel argued that Align had inserted electronic transmissions into the definition of “articles” using antiquated dictionary definitions.  Counsel also noted that, around the time Congress drafted Section 337, Congress also created the Federal Communications Commission, suggesting a bifurcation between “articles” governed by the ITC and “electronic transmissions” (e.g., radio waves) governed by the FCC.

Chief Judge Prost probed ClearCorrect’s arguments, asking why the ITC’s jurisdiction could not evolve with the evolution of new technology.  ClearCorrect’s counsel responded that the character of electronic transmissions has not changed and that Congress had such transmissions in mind when drafting Section 337, yet had not included them in the statute.  Judge O’Malley asked whether data that could readily take a tangible form, such as a data file designed for use with a 3D printer, could qualify as an “article.”  Counsel responded that all electronic transmissions are the same, regardless of ultimate use.  Judge Newman asked if ClearCorrect wanted the Court to read an exception into Section 337 for electronic transmissions, and counsel clarified that no such exception was necessary – rather, the term “articles” in Section 337 refers exclusively to something physical that can be stopped at a customs house.

Counsel for the ITC argued that “digital goods” are within the ITC’s jurisdiction, while “digital services” are not.  Although counsel stated that he could not tell the Court where the line between “goods” and “services” should be drawn, he asserted that phone calls, for example, are not digital goods inasmuch as a phone call is not an item that can be bought and sold in commerce.

Chief Judge Prost and Judge O’Malley raised a number of questions regarding the ITCs definition of “articles” and whether the term should be construed only to refer to material or tangible things.  Judge O’Malley asked if the ITC’s construction of “articles” included “anything that would be data streamed,” and the ITC’s counsel stated that such things “might or might not be” within the scope of Section 337.  The ITC’s counsel further conceded that some newer dictionary definitions did not include intangible goods in their definitions of “articles,” but maintained that Webster’s First Dictionary included intangible goods and should be relied upon by the Court.  Counsel also asserted that, regardless of how “articles” are defined, internet service providers (“ISPs”) would be protected from ITC investigations by the Digital Millennium Copyright Act (“DMCA”), much as freight handlers are protected when carrying potentially infringing goods.  Counsel for the ITC emphasized that the instant investigation was not about ISPs.

Align’s counsel argued that intellectual property protections should not be denied to domestic industries based on “irrelevant” concerns regarding “tangibility.”  He emphasized that the instant case involved digital goods that could be readily converted to physical goods. When asked if all the activity in the instant case was actionable in district court, counsel argued that an overlap of remedies was perfectly acceptable and intended by Congress.

The judges showed significant interest in the question of whether deference should be accorded to the ITC’s interpretation of its own jurisdiction under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).  The judges also repeatedly referenced the en banc decision issued a day earlier in Suprema, Inc. v. Int’l Trade Comm’n, No. 2012-1170 (Aug. 10, 2015), where the Federal Circuit gave Chevron deference to the Commission’s interpretation of Section 337 as covering situations where infringement occurs only after importation of the accused goods.  Our full blog post analyzing the Suprema decision can be found here.  All parties were asked to provide letter briefs regarding the impact of Suprema on both the ClearCorrect and Align Technology appeals.

ClearCorrect argued that Chevron deference would only come into play if the ITC had been given subject matter jurisdiction over electronic transmissions.  In this regard, ClearCorrect’s  counsel asserted that Congress could have given the ITC authority with respect to “commerce,” but it chose to confer more limited authority over only “articles.”  Judge Newman asked ClearCorrect’s counsel whether this effectively limited electronic transmission importation suits to the district courts, to which counsel responded in the affirmative.

Chief Judge Prost and Judge O’Malley also inquired about ITC cease and desist orders.  They suggested that such orders were merely supplements to exclusion orders (which are enforced by Customs) and questioned whether a cease and desist order could be used as a substitute where an exclusion order would not work (e.g., where the infringing article is not tangible).  Counsel for the ITC responded that cease and desist orders, which are enforced by the ITC itself, are not merely supplements to exclusion orders.

 Align Technology, Inc. v. ITCDisputes about “Importation” and 35 U.S.C. § 271(g)

Immediately following the ClearCorrect argument, the panel heard argument in Align’s appeal from the Commission’s decision, Align Technology, Inc. v. ITC, No. 2014-1533.

This appeal involved claims in some of Align’s patents regarding data as stored on a “computer-readable medium.”  In its brief, Align maintained that the ITC should have defined “importation” more broadly to include the storing of data transmitted from abroad on a server or computer located in the United States.  Align further argued that the ITC erroneously concluded that 35 U.S.C. § 271(g), which concerns product-by-process infringement, is only applicable in district court infringement actions, not in Section 337 proceedings, and had misconstrued the Federal Circuit’s decision in Kinik Co. v. International Trade Commission, 362 F.3d 1359 (Fed. Cir. 2004).  In Kinik, the Court gave Chevron deference to the ITC’s determination that defenses to infringement available under § 271(g) are not available in Section 337 actions.  Align maintained that the Kinik decision only concerned the inapplicability of § 271(g) defenses and did not reach the offensive use of § 271(g).  The ITC’s counsel argued that the ITC had properly interpreted the relationship between the two statutory provisions in Kinik and correctly concluded that Congress did not intend to make § 271(g) applicable in Section 337 proceedings.