111010001: An Article of Commerce?

The claims at issue relate to methods for producing the digital data sets and aligners. The Commission determined that because ClearCorrect Operating's infringement occurred in the United States, it was not a violation of Section 337. The Commission instead exerted its authority over ClearCorrect Pakistan as a direct and contributory infringer for “importing” the data models. Because the Commission's jurisdiction to remedy unfair international trade practices under Section 337 is limited to the importation of “articles,” the Commission determined that the term “articles” encompasses digital data ' in this case, the “digital models, digital data and treatment plans, expressed as digital data sets, which are virtual three-dimensional models of the desired positions of the patients' teeth at various stages of orthodontic treatment.”

The Federal Circuit's Opinion

The Federal Circuit reversed the Commission's finding that “articles” encompasses digital data. The panel issued three separate opinions, with Chief Judge Prost writing the opinion of the court, Judge O'Malley concurring, and Judge Newman dissenting. Applying the Chevron test (from Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)), Chief Judge Prost first held that the “unambiguously expressed” intent of Congress is that “articles” means “material things” and does not extend to electronically transmitted digital data. Chief Judge Prost relied on numerous dictionaries defining “article” as a material or tangible thing. She further noted that this definition is consistent with the Dictionary of Tariff Information, as well as the use of “articles” elsewhere in the Tariff Act, Omnibus Trade and Competitiveness Act of 1988, and the remedies available under both.

Although such a finding, alone, ends the inquiry, Chief Judge Prost nevertheless proceeded to conduct the second step of the Chevron analysis ' specifically, whether the Commission's interpretation of “articles” to include electronically transmitted data was reasonable. The Commission's interpretation was deemed to be unreasonable because it lacked a definition consistent with the dictionary entries on which it relied and failed to address the dictionary definitions defining “articles” as “material things.” ClearCorrect at 40-42. Chief Judge Prost also took the Commission to task for relying on recent Congressional debates and for omitting critical language from a Senate Report quote on which it relied, given that the omitted language specifically limits the statement to the “importation of goods.” In light of the unreasonable nature of its interpretation, Chief Judge Prost found that the Commission was owed no deference. Id. at 40.

Judge O'Malley concurred, but also opined that there was no need to get past ” Chevron step zero” because Congress clearly never delegated the authority to regulate “all incoming international Internet data transmissions” to the Commission, thus rendering it unnecessary to even apply the Chevron two-step test. Id. at 50.

Judge Newman dissented, finding the Commission's ruling consistent with the language, structure, and purpose of Section 337, and “decades of precedent concerned with digital data, electronic transmission, and infringing importation.” Id. at 71. In sum, Judge Newman opined that Section 337 “applies to all patented technologies, including digital technologies, whatever the path of importation.” Id. at 59. She dismissed the dictionary definitions as “imprecise at best,” and found that nothing in Section 337 or the legislative history limits its scope to certain modes of entry. Id. at 64.

ClearCorrect's Impact

Whatever the ultimate result of ClearCorrect (a motion for rehearing en banc is expected), its practical impact will be limited, at least in the immediate future. As the Federal Circuit noted, the jurisdictional restriction imposed by ClearCorrect is limited to electronically transmitted digital data. Any digital data imported on physical mediums are plainly within the Commission's jurisdiction. Imports of digital data on discs, drives, or otherwise installed on devices such as phones and computers are thus not impacted.

The limit on the Commission's jurisdiction also does not create a large loophole. Indeed, in light of Suprema, a company cannot circumvent the ITC by importing “dumb” devices, electronically transmitting the infringing digital data into the United States, and then installing it on the devices. Although the imported devices would be non-infringing at the time of importation, the intended use of those devices with infringing software or other digital data would enable the ITC to block the importation of the devices, thus preventing infringement. Suprema, 796 F.3d at 1352-1353.

Even if the Federal Circuit had reached the opposite result, the Commission's extended jurisdiction would have limited significance. Software and other digital data created in the United States would not typically be subject to the Commission's jurisdiction. Because of the lack of need for cheaper foreign manufacturing, such software and digital data can be made and distributed from the United States.

ClearCorrect's impact would be felt in the areas of outsourced software development and digital design ' for example, development of CAD files, though this scope would be largely rendered moot in light of the likely need for foreign manufacturing. Although a nascent industry, an alternative ruling in ClearCorrect would likely have a significant impact on 3D printing. As 3D printing advances, more digital CAD files will be created abroad and electronically transmitted to 3D printers in the United States. Given the broad capabilities of 3D printers, it will be difficult to stop the importation of those devices as a means to police infringing digital designs. Under the court's ruling in ClearCorrect, the Commission lacks the jurisdiction to investigate such instances of infringement.

ClearCorrect Reverses Trend Of Expanding ITC Jurisdiction

ClearCorrect is notable in another regard. Before ClearCorrect, the ITC had tended to see its jurisdiction under Section 337 expand to cover changes in industry. In 1988, for example, as competition from abroad stiffened, Congress amended Section 337 to ease domestic industry requirements for investigations based on intellectual property rights. In 2013, the Federal Circuit left the ITC open to non-practicing and patent assertion entities, finding that as long as the patent covers “the article that is the subject of the exclusion proceeding,” and as long as the party seeking relief “can show that it has a sufficiently substantial investment in the exploitation of the intellectual property to satisfy the domestic industry requirement of the statute,” that party is entitled to seek relief under Section 337. See, InterDigital Comm's. LLC v. International Trade Commission, 707 F.3d 1295 (Fed. Cir. 2013).

Although ClearCorrect bucks this trend, the ultimate outcome is not yet known. The panel's decision is a strong candidate for en banc review. The divide of the panel itself suggests en banc review. Also, considered in light of how the remainder of the court analyzed the interpretation of “articles” and the deference granted to the Commission in Suprema, Judge Newman's opinion may reflect the majority view of the larger court.

It is also worth noting that ClearCorrect may provide the Supreme Court an opportunity to revisit the Federal Circuit's ruling in Suprema. Because a writ of certiorari was not filed in Suprema, the Supreme Court never had the opportunity to evaluate the Federal Circuit's decision. Although the issues differ, both Suprema and ClearCorrect involve the proper interpretation of “articles that infringe” under Section 337. And although the court's decision in ClearCorrect limited its analysis to “articles,” it is conceivable that the Supreme Court's ruling, if certiorari is granted, will impact the ruling in Suprema as well.

Conclusion

By holding that the ITC does not have jurisdiction over digital commerce, ClearCorrect limits the ITC's jurisdiction over an ever expanding part of the U.S. economy. Unless ClearCorrect is reversed, patent holders whose intellectual property covers technology that can be digitally imported into the United States can no longer rely on the ITC to remedy the importation of infringing products.

Bryan Kohm is a partner at Fenwick & West LLP. Bryan focuses on intellectual property litigation and is a regular commentator on ITC practice. He can be reached at [email protected]. Stefan Szpajda is an associate at Fenwick & West LLP. Stefan focuses his practice on patent and trade secrets litigation. He can be reached at [email protected].

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In ClearCorrect Operating, LLC v. ITC, No. 2014-1527, 2015 U.S. App. LEXIS 19558 (Fed. Cir. Nov. 10, 2015), the Federal Circuit limited the International Trade Commission's (ITC) jurisdiction over digital commerce. In a 2-1 decision, the panel held that the ITC lacks authority to regulate digital imports. (Note: Digital imports are limited to electronically transferred data, not digital data imported on physical medium, such as disks or drives.) Id . at 12. In light of the recent en banc decision in Suprema, Inc. v. ITC, 796 F.3d 1338 (Fed. Cir. 2015), the panel's decision is unlikely to be the final word on the issue.

The ITC Investigation

The Commission instituted the underlying investigation regarding whether ClearCorrect Operating, LLC and Clear Correct Pakistan (Private), Ltd. (collectively, “ClearCorrect”) infringed seven patents. ClearCorrect manufactures orthodontic appliances, known as aligners, by first creating a digital recreation of a patient's teeth in the United States and electronically transmitting the digital file to Pakistan. The file is used to create digital data models of tooth positions. ClearCorrect then electronically transmits the digital models to the United States, which are used to make aligners by thermoplastic molding.

The claims at issue relate to methods for producing the digital data sets and aligners. The Commission determined that because ClearCorrect Operating's infringement occurred in the United States, it was not a violation of Section 337. The Commission instead exerted its authority over ClearCorrect Pakistan as a direct and contributory infringer for “importing” the data models. Because the Commission's jurisdiction to remedy unfair international trade practices under Section 337 is limited to the importation of “articles,” the Commission determined that the term “articles” encompasses digital data ' in this case, the “digital models, digital data and treatment plans, expressed as digital data sets, which are virtual three-dimensional models of the desired positions of the patients' teeth at various stages of orthodontic treatment.”

The Federal Circuit's Opinion

The Federal Circuit reversed the Commission's finding that “articles” encompasses digital data. The panel issued three separate opinions, with Chief Judge Prost writing the opinion of the court, Judge O'Malley concurring, and Judge Newman dissenting. Applying the Chevron test (from Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)), Chief Judge Prost first held that the “unambiguously expressed” intent of Congress is that “articles” means “material things” and does not extend to electronically transmitted digital data. Chief Judge Prost relied on numerous dictionaries defining “article” as a material or tangible thing. She further noted that this definition is consistent with the Dictionary of Tariff Information, as well as the use of “articles” elsewhere in the Tariff Act, Omnibus Trade and Competitiveness Act of 1988, and the remedies available under both.

Although such a finding, alone, ends the inquiry, Chief Judge Prost nevertheless proceeded to conduct the second step of the Chevron analysis ' specifically, whether the Commission's interpretation of “articles” to include electronically transmitted data was reasonable. The Commission's interpretation was deemed to be unreasonable because it lacked a definition consistent with the dictionary entries on which it relied and failed to address the dictionary definitions defining “articles” as “material things.” ClearCorrect at 40-42. Chief Judge Prost also took the Commission to task for relying on recent Congressional debates and for omitting critical language from a Senate Report quote on which it relied, given that the omitted language specifically limits the statement to the “importation of goods.” In light of the unreasonable nature of its interpretation, Chief Judge Prost found that the Commission was owed no deference. Id. at 40.

Judge O'Malley concurred, but also opined that there was no need to get past ” Chevron step zero” because Congress clearly never delegated the authority to regulate “all incoming international Internet data transmissions” to the Commission, thus rendering it unnecessary to even apply the Chevron two-step test. Id. at 50.

Judge Newman dissented, finding the Commission's ruling consistent with the language, structure, and purpose of Section 337, and “decades of precedent concerned with digital data, electronic transmission, and infringing importation.” Id. at 71. In sum, Judge Newman opined that Section 337 “applies to all patented technologies, including digital technologies, whatever the path of importation.” Id. at 59. She dismissed the dictionary definitions as “imprecise at best,” and found that nothing in Section 337 or the legislative history limits its scope to certain modes of entry. Id. at 64.

ClearCorrect's Impact

Whatever the ultimate result of ClearCorrect (a motion for rehearing en banc is expected), its practical impact will be limited, at least in the immediate future. As the Federal Circuit noted, the jurisdictional restriction imposed by ClearCorrect is limited to electronically transmitted digital data. Any digital data imported on physical mediums are plainly within the Commission's jurisdiction. Imports of digital data on discs, drives, or otherwise installed on devices such as phones and computers are thus not impacted.

The limit on the Commission's jurisdiction also does not create a large loophole. Indeed, in light of Suprema, a company cannot circumvent the ITC by importing “dumb” devices, electronically transmitting the infringing digital data into the United States, and then installing it on the devices. Although the imported devices would be non-infringing at the time of importation, the intended use of those devices with infringing software or other digital data would enable the ITC to block the importation of the devices, thus preventing infringement. Suprema, 796 F.3d at 1352-1353.

Even if the Federal Circuit had reached the opposite result, the Commission's extended jurisdiction would have limited significance. Software and other digital data created in the United States would not typically be subject to the Commission's jurisdiction. Because of the lack of need for cheaper foreign manufacturing, such software and digital data can be made and distributed from the United States.

ClearCorrect's impact would be felt in the areas of outsourced software development and digital design ' for example, development of CAD files, though this scope would be largely rendered moot in light of the likely need for foreign manufacturing. Although a nascent industry, an alternative ruling in ClearCorrect would likely have a significant impact on 3D printing. As 3D printing advances, more digital CAD files will be created abroad and electronically transmitted to 3D printers in the United States. Given the broad capabilities of 3D printers, it will be difficult to stop the importation of those devices as a means to police infringing digital designs. Under the court's ruling in ClearCorrect, the Commission lacks the jurisdiction to investigate such instances of infringement.

ClearCorrect Reverses Trend Of Expanding ITC Jurisdiction

ClearCorrect is notable in another regard. Before ClearCorrect, the ITC had tended to see its jurisdiction under Section 337 expand to cover changes in industry. In 1988, for example, as competition from abroad stiffened, Congress amended Section 337 to ease domestic industry requirements for investigations based on intellectual property rights. In 2013, the Federal Circuit left the ITC open to non-practicing and patent assertion entities, finding that as long as the patent covers “the article that is the subject of the exclusion proceeding,” and as long as the party seeking relief “can show that it has a sufficiently substantial investment in the exploitation of the intellectual property to satisfy the domestic industry requirement of the statute,” that party is entitled to seek relief under Section 337. See, InterDigital Comm's. LLC v. International Trade Commission, 707 F.3d 1295 (Fed. Cir. 2013).

Although ClearCorrect bucks this trend, the ultimate outcome is not yet known. The panel's decision is a strong candidate for en banc review. The divide of the panel itself suggests en banc review. Also, considered in light of how the remainder of the court analyzed the interpretation of “articles” and the deference granted to the Commission in Suprema, Judge Newman's opinion may reflect the majority view of the larger court.

It is also worth noting that ClearCorrect may provide the Supreme Court an opportunity to revisit the Federal Circuit's ruling in Suprema. Because a writ of certiorari was not filed in Suprema, the Supreme Court never had the opportunity to evaluate the Federal Circuit's decision. Although the issues differ, both Suprema and ClearCorrect involve the proper interpretation of “articles that infringe” under Section 337. And although the court's decision in ClearCorrect limited its analysis to “articles,” it is conceivable that the Supreme Court's ruling, if certiorari is granted, will impact the ruling in Suprema as well.

Conclusion

By holding that the ITC does not have jurisdiction over digital commerce, ClearCorrect limits the ITC's jurisdiction over an ever expanding part of the U.S. economy. Unless ClearCorrect is reversed, patent holders whose intellectual property covers technology that can be digitally imported into the United States can no longer rely on the ITC to remedy the importation of infringing products.

Bryan Kohm is a partner at Fenwick & West LLP. Bryan focuses on intellectual property litigation and is a regular commentator on ITC practice. He can be reached at [email protected]. Stefan Szpajda is an associate at Fenwick & West LLP. Stefan focuses his practice on patent and trade secrets litigation. He can be reached at [email protected].

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