ClearCorrect: ITC and Patentee Align Submit Petitions for Rehearing En Banc, Asking Federal Circuit to Reconsider Whether the ITC Has Jurisdiction Over Digital Imports
On January 27, 2016, the International Trade Commission (ITC) formally requested a rehearing en banc of a November 10, 2015, Federal Circuit panel decision in ClearCorrect Operating, LLC v. ITC. The Federal Circuit’s panel opinion struck a blow to both the ITC and the entertainment and software industries by overturning the ITC’s opinion and finding that the ITC’s jurisdiction was limited to “material things” and did not include the ability to bar digital imports. No. 2014-1527, Slip Op. at 3 (Fed. Cir. Nov. 10, 2015).
In an ITC investigation instituted in April 2012, Align Technology claimed that Respondents ClearCorrect Pakistan and ClearCorrect Operating LLC infringed claims of seven patents relating to a system and methods for repositioning teeth. ClearCorrect made models of the U.S. patients’ teeth which were then scanned and converted into digital data sets, which were then transmitted to Pakistan. In Pakistan the data sets were manipulated, and the adjusted data sets were sent back to ClearCorrect in the United States, where they were used to create the aligners used by the patents via 3D printing. Thus, no physical articles were imported – the only item imported was a digital data set. In April 2014, the ITC found that ClearCorrect infringed the patents, and issued exclusion and cease and desist orders barring ClearCorrect from importing the data sets.
The ClearCorrect case received a great deal of attention because of its potential implications for the breadth of the ITC’s jurisdiction and the entertainment and software industries. As much of music, software, and film piracy occurs via transmission or download rather than physical importation, the Commission decision gave the entertainment and software industries a powerful tool to fight piracy. In addition, the Commission opinion reassured patentees that infringers could not bypass ITC jurisdiction by using 3D printing to create products in the United States. That Commission decision, however, was overturned by a panel of the Federal Circuit on November 10, 2015, and it is this Federal Circuit panel decision that the ITC and Align are now asking be reheard.
After noting the “exceptional importance” of the issue of whether the ITC will have jurisdiction over digital downloads, the ITC’s petition focuses on two main arguments against the panel decision: that the panel misinterpreted “articles” to require “material things,” and that the misinterpretation of “articles” led to a misapplication of the Chevron framework.
First, the ITC pointed out that while the panel’s decision to equate the terms “articles” and “goods” was correct, the decision finding that both terms must be referring to “material things” was incorrect and inconsistent with the recent en banc decision in Suprema v. ITC. The ITC’s petition pointed out that Suprema equated “articles” and “goods” more than twenty times, and reaffirmed the application of Chevron. The statute authorizing the ITC grants jurisdiction to the ITC for unfair competition related to the “importation of articles.” 19 U.S.C. § 1337(a)(1)(A). Thus, if “articles” were to be limited to material things digital downloads would not fall under the jurisdiction granted to the ITC. The petition discusses relevant case law (including Suprema v. ITC, where the Federal Circuit upheld the ITC’s jurisdiction over indirect infringement allegations), various definitions of “articles” and “goods” from language dictionaries and Black’s Law Dictionary, current trade law, and statutory context to demonstrate why the panel’s decision to require “material things” was erroneous.
Second, the petition argues that both steps of Chevron were misapplied. The Chevron analysis requires two steps. First, the court must ask whether Congress has directly spoken to the precise question at issue. If Congressional intent is clear, the inquiry ends. However, if it is not, the second step is applied which asks whether the agency’s interpretation of Congressional intent was reasonable. The first step, according to the petition, should not have been found satisfied because Congress had not “directly spoken to the precise question at issue.” The petition pointed out that the statute is silent on whether “article” should include “material things,” thus the ITC, under Suprema and Chevron, was obligated to resolve the apparent ambiguity of the meaning of “article.” According to the petition, the ITC was therefore acting properly in resolving the ambiguity, and the erroneous application of Chevron step one, which also overlooked the deference owed the ITC under Suprema, caused the panel to ignore the ITC’s reasonable interpretation of “article” when the panel applied Chevron step two.
The ITC also addressed the panel opinion’s assertion that cease and desist orders could only be implemented as a lesser alternative to an exclusion order. The petition filed by the ITC criticized the panel’s ruling that granting a cease and desist order in this case would artificially expand ITC jurisdiction. To the contrary, according to the ITC’s petition, cease and desist orders stand on their own as a useful remedy, and in fact can be more onerous than exclusion orders.
The owner of the patents at issue, Align Technology, also submitted a petition on January 27 seeking a rehearing en banc. Align’s petition echoed the ITC’s assertion that this case is of great significance, and largely tracked the ITC’s argument regarding the panel’s interpretation of “article.” Discussing the case’s importance, Align emphasized that were the panel decision to stand, it would “extinguish the Commission’s jurisdiction over rapidly growing digital trade and enable evasion of Section 337.” Align went on to explain that the panel’s opinion would lead to a “truncation of an important federal agency’s jurisdiction over emerging areas of trade, which renders the commission powerless to combat the threats of electronic piracy of copyrighted materials and infringing 3-D printing” and that these issues “alone present an issue of exceptional importance.” Align further argued that it should be up to Congress to correct the ITC’s interpretation of “article,” if that interpretation was erroneous.
Whether or not the Federal Circuit grants the petition to rehear en banc, the November 10, 2015 panel decision has broad implications for the ebook, film, entertainment, and software industries, and also for whether the ITC will be able to help intellectual property rights holders fight novel and nontraditional forms of infringement. A decision on the petitions to rehear en banc is expected before April and we will be following the case. Please check back here for updates.