October 19, 2019

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Federal Circuit Panel Decision 2-1 Reverses U.S. International Trade Commission Determination It Has Authority to Regulate Importation of Digital Data

In ClearCorrect v. ITC, issued on November 10, 2015, the Federal Circuit interpreted the term “articles” as used in Section 337 to be tangible, physical items. Accordingly, electronic transmissions were held to be outside the scope of litigable subject matter—reversing the Commission’s earlier opinion in In re Certain Digital Models, Inv. No. 337-TA-833 (Apr. 3, 2014).

Background

The dispute was based on a complaint filed by Align Technology who makes Invisalign® clear dental aligners. The respondents, ClearCorrect US and ClearCorrect Pakistan, were accused of gathering dental information from patients in the U.S., exporting that information to Pakistan for processing, and importing that information back into the U.S. to create competing dental aligners. The Commission ultimately found in its final determination that the imported data was an “article” within the meaning of Section 337 that contributed to the infringement of the claimed methods, and issued a cease-and-desist order against ClearCorrect. Both parties appealed this finding to the Federal Circuit.1

The Majority Reverses the Commission’s Decision

The majority opinion, written by Chief Judge Prost, adopted the position that the Commission lacked jurisdiction to hear this dispute. Using Chevron deference, the majority concluded that the term “article” did not include everything that “may be traded in commerce or used by consumers” and instead limited the term to a “material thing,” which did not include digital data. Based upon this conclusion there was no need to visit the second Chevron step. However, even under the Chevron second step, the Court found that the Commission’s construction of the statute did not warrant deference because it was inconsistent with the dictionary definitions, statutory context, and legislative history.

The Impact of ClearCorrect on the Industry

The Commission is no longer in a position to regulate unfair acts of competition that involve importation of pure digital data transmissions over the internet or over other networks, as was hoped by the film, music, and publishing industries. This now places the burden on domestic intellectual property holders to enforce their rights in U.S. District Courts, which can often be cumbersome given the extraterritoriality implications associated with data importation by foreign entities. More fundamentally, if the accused technology in a Section 337 investigation involves software, this Decision leaves open the possibility for companies to circumvent the Commission’s jurisdiction by “splitting” digital data from any associated physical medium or material good, and transferring it into the U.S. electronically.


1 Although stays of remedial orders are rare, the Commission set aside the cease-and-desist order here pending guidance by the Federal Circuit on its statutory interpretation of what qualifies as an “article.”

© 2019 Sterne Kessler

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About this Author

Daniel E. Yonan, Sterne Kessler Law Firm, Intellectual Property Attorney
Director

Daniel E. Yonan is an experienced intellectual property trial attorney focusing on complicated patent disputes before federal district courts and fast-track investigations before the U.S. International Trade Commission.

Mr. Yonan has appeared as counsel of record in nearly 10 complex patent infringement trials, and served as ITC trial counsel in more than 20 patent-based Section 337 investigations.  As a result, Mr. Yonan’s experience includes a wide range of responsibilities, such as witness preparation, direct and cross-examination of fact and expert witnesses, dispositive motion...

202-772-8899
Dallin G. Glenn, Sterne Kessler Law Firm, Intellectual Property Attorney
Associate

Mr. Glenn is an associate in the Litigation Group.  His work involves complex intellectual property disputes in U.S. District Courts and before the ITC.

202-772-8897
Josephine Kim, patent infringement litigation attorney, Sterne Kessler, law firm
Associate

A member of the Firm's litigation group, Ms. Kim concentrates her practice on patent-infringement dispute litigation, including matters before federal district courts and before the United States International Trade Commission.

While attending law school, Ms. Kim served as Executive Editor for the University of Pennsylvania Journal of Constitutional Law and President of the Penn Law Asian Pacific American Law Students Association. Ms. Kim also holds a Certificate in Business and Public Policy from the Wharton School of the University of...

202-772-8896