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Article: April 2016: ITC Litigation Update

April 01, 2016
Business Litigation Reports

The Federal Circuit Considers Another Issue Relating to ITC Jurisdiction in Section 337 Investigations. Less than three months after its en banc decision in Suprema, Inc. v. Int’l Trade Comm’n, 796 F.3d 1338 (Fed. Cir. 2015), the Federal Circuit handed down another ruling directly implicating the United States International Trade Commission’s (“ITC”) jurisdiction in Section 337 investigations. The panel’s decision in ClearCorrect Operating, LLC v. Int’l Trade Comm’n, 810 F.3d 1283, 1286 (Fed. Cir. 2015), again circumscribes the ITC’s jurisdiction and rejects the ITC’s interpretation of Section 337. The ITC has requested that the Federal Circuit review the panel’s decision en banc and vacate that decision as the Federal Circuit did in Suprema.

Section 337 of the Tariff Act of 1930 authorizes the ITC to block the importation into the United States of “articles” that either violate a valid and enforceable intellectual property right held in the United States or otherwise involve unfair methods of competition. When there is no importation of “articles,” there can be no unfair act and thus nothing for the ITC to remedy. The ITC has traditionally interpreted the definition of “articles” to include electronic transmission of digital data. See, e.g., Certain Hardware Logic, Comm’n Op. on Remedy, the Public Interest, and Bonding, 1998 WL 307240, at *11 (Mar. 1, 1998) (establishing that “the Commission has the legal authority to cover electronic importations”); Certain Incremental Dental Positioning Adjustment Appliances, Inv. No. 337-TA-562, Comm’n Op. at 7 (Jan. 23, 2013) (enforcement action confirming that an electronic transmission is an article subject to the ITC’s jurisdiction). This interpretation was reviewed by the Federal Circuit in ClearCorrect. On November 10, 2015, the majority of a divided Federal Circuit panel issued a precedential opinion reversing the ITC’s interpretation of “articles” as that term pertains to the electronic transmission of digital data. ClearCorrect, 810 F.3d at 1286. According to the majority, under the text of Section 337, “articles” means “materials things” and thus does not include electronic transmissions.

The underlying ITC investigation in ClearCorrect (Inv. No. 337-TA-833) was based on a patent infringement complaint filed by Align Technology, Inc. (“Align”) against ClearCorrect Operating, LLC (“ClearCorrect USA”) and Clear Correct Pakistan (Private), Ltd. (“ClearCorrect Pakistan”) (collectively, “ClearCorrect”). The asserted patents covered the production of particular orthodontic appliances, also known as aligners. As part of that manufacturing process, ClearCorrect USA and ClearCorrect Pakistan exchanged digital models of a patient’s teeth. Physical models based on the digital versions were ultimately manufactured in the United States by ClearCorrect USA. Because the physical models were made in the U.S. and thus not subject to the ITC’s jurisdiction, the accused “articles” under Section 337 were the digital models transmitted from Pakistan to the U.S. The ITC found that it had jurisdiction over those electronically imported digital models.

The majority in ClearCorrect disagreed. Chief Judge Prost, writing for the majority, noted that although the term “articles” is not defined by statute, the literal text of the term, the context in which the text is found within Section 337, and the statutory scheme all indicate that Congress intended “articles” to mean “material things” and not to extend to electronic transmissions of digital data. 810 F.3d at 1299. The majority further reasoned that although “electronic transmissions have some physical properties—for example an electron’s invariant mass is a known quantity—[ ] commonsense dictates that there is a fundamental difference between electronic transmissions and ‘material things.’” Id. at 1286.

In a strong dissent, Judge Newman argued that not only had Congress vested the ITC “with broad enforcement authority to remedy unfair trade acts” so that its authority under Section 337 would be “broad enough to prevent every type and form of unfair practice,” but that the majority’s ruling also contravenes “decades of precedent concerned with digital data, electronic transmission, and infringing importation.” Id. at 1305-06, 1312. The dissent thus reasoned that Section 337 is “not limited to the kinds of technology that existed in 1922 or 1930”; that the term “articles” is “all-encompassing” and covers all infringing imported “articles of commerce”; and that the “importation of infringing articles is not restricted to specific kinds of carriers or modes of entry.” Id. at 1306-09. The dissent further added that because digital information is patentable and potentially infringing subject matter, there is no basis for excluding it from Section 337 because that statute covers “imported infringing subject matter . . . whatever the form of the subject matter.” Id. at 1306.

On January 27, 2016, the ITC and Align filed separate petitions for en banc rehearing. On January 28, the Federal Circuit invited ClearCorrect and amici curiae to file responses to the petitions for rehearing en banc, which they did in February. Because of the importance of this issue, the Federal Circuit may well issue two en banc decisions in a year concerning the ITC’s jurisdictional reach.