Three months after its en banc decision in Suprema, Inc. v. Int’l Trade Comm’n 2012-1170 (Fed. Cir. Aug. 10, 2105) (see our previous Client Alert), the Federal Circuit issued another much-anticipated opinion concerning the authority of the U.S. International Trade Commission (“ITC” or “the Commission”) to stop importations of infringing articles. In ClearCorrect, the Court reversed the ITC’s decision to “expand the scope of its jurisdiction to include electronic transmissions of digital data” as being contrary to the Congressional intent of Section 337. According to the Court, Section 337 prevents the importation of unfairly traded “articles” and “articles” means “material things,” not digital transmissions.
In Certain Digital Models, Inv. No. 337-TA-833, Complainant Align Technology, Inc. (“Align”) — provider of the invisalign® brand of orthodontic appliances or aligners — accused Respondents ClearCorrect Operating, LLC (“ClearCorrect US”) and ClearCorrect Pakistan (Private), Ltd. (“ClearCorrect Pakistan”) (collectively “ClearCorrect”) of violating Section 337 based on the use in Pakistan of a patented method for forming digital models of dental appliances and the subsequent importation of the digital models, data and treatment plans.
ClearCorrect, a competitor of Align, produced aligners by: (a) scanning physical models of a patient’s teeth and creating a digital representation of the patient’s initial tooth arrangements in the U.S.; (b) transmitting this information to ClearCorrect in Pakistan; (c) creating digital data models in Pakistan of various intermediate tooth positions; (d) electronically transmitting the digital data models to ClearCorrect in the U.S.; (e) making physical models in the U.S. based on the digital data models; and (f) manufacturing aligners in the United States based on the physical models. The patient then wears one aligner at a time and progresses through the entire set of aligners until the desired, final tooth positions are achieved. After an investigation and a hearing, the ITC found ClearCorrect infringed the asserted claims. However, before issuing any remedy for the infringement, the ITC addressed the question of whether it had jurisdiction over electronically imported data under Section 337. Answering that question in the affirmative, the ITC issued a cease and desist order prohibiting ClearCorrect from importing the digital models, but did not issue an exclusion order.
The issue confronting the ITC and the Court, was whether the term “articles” as used in Section 337 is broad enough to cover the electronic transmissions of the digital data models or is the term “articles” limited to material things. In a 2-1 opinion, a divided Federal Circuit panel reversed and remanded the Commission’s decision, finding that the ITC does not have jurisdiction over such digital transmissions. Writing for the majority, Judge Prost wrote that the “[t]he Commission’s decision to expand the scope of its jurisdiction to include electronic transmissions of digital data runs counter to the ‘unambiguously expressed intent of Congress.’” According to the Court, “Section 337 is an enforcement statute enacted by Congress to stop at the border the entry of goods, i.e., articles, that are involved in unfair trade practices.”
The Court examined the Commission’s interpretation of the term “articles” pursuant to Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Under the Chevron framework, an agency’s construction of a statute which it administers is entitled to deference only if Congress has not spoken to the precise question at issue and the agency’s answer is based on a permissible construction of the statute. Here, the majority found “it is clear that ‘articles’ [in Section 337(a)(1)] means ‘material things,’ whether when looking to the literal text or when read in context ‘with a view to [the term’s] place in the overall statutory scheme.’” Apart from citing contemporaneous dictionary definitions and statutory context, the majority noted that the original version of Section 337 could not have contemplated intangible articles because it provided the sole remedy of an exclusion order, whereas “intangibles, such as electronic transmissions, do not pass through United States ports and cannot be excluded by Customs.” The Court rejected the Commission’s argument that Congress’s 1974 amendment to section 337 authorizing the issuance of cease and desist orders supported an expansive read of the statute. In making the 1974 amendment, Congress made clear that it did not intend any change in the jurisdiction conferred under Section 337. The Court further found that, even if step two of the Chevron inquiry were applicable, “the Commission’s interpretation of the term ‘articles’ [as encompassing digital goods] was unreasonable” and therefore entitled to no deference.
Judge O’Malley issued a concurring opinion noting that “this is one of those extraordinary cases” where courts should not apply the Chevron framework because “it is clear Congress could not have intended to grant the agency authority to act in the substantive space at issue.” Citing the ITC’s lack of past precedent and expertise in dealing with data transmissions as well as “the many competing policy concerns implicated in any attempt to regulate Internet transmissions,” Judge O’Malley concluded that “[i]f Congress intended for the Commission to regulate one of the most important aspects of modern-day life, Congress surely would have said so expressly.”
In a dissenting opinion, Judge Newman concluded that “the International Trade Commission correctly applied the Tariff Act and precedent to encompass today’s forms of infringing technology.” She discussed the history of Section 337 and emphasized that its purpose is to “give industries in the United States, not only the benefit of the favorable laws and conditions to be found in this country, but also to protect such industries from being unfairly deprived of the advantage of the same and permit them to grow and develop,” quoting the 1930 decision Frischer & Co. v. Bakelite Corp., 39 F.2d 247, 259 (CCPA1930). Judge Newman reasoned: “Section 337 was enacted to facilitate the protection of American industry against unfair competition by infringing imports” and accordingly “[t]he statute was designed to reach ‘every type and form’ of unfair competition arising from importation.” She agreed with the Commission that “Section 337 is not limited to the kinds of technology that existed in 1922 or 1933” and “articles” in the statute means “articles of commerce” or “any commodity” whether tangible or intangible. According to Judge Newman, the ITC’s authority over the importation of infringing articles should not be restricted to any “specific kinds of carriers or modes of entry.”
The Federal Circuit’s decision precludes a patent owner from using Section 337 to stop the importation of digital data that infringes a U.S. patent. However, considering the prevalence of digital transmissions, the Commission’s opinion and the strong dissent, this issue may be further addressed by the Supreme Court.