Federal Circuit Panel Rejects ITC Assertion of Authority Over Intangible Articles ClearCorrect Operating, LLC et al. v. Int’l Trade Comm’n
ClearCorrect Operating, LLC et al. v. Int’l Trade Comm’n
Reviewing an interpretation by the U.S. International Trade Commission (ITC or Commission) of its enabling statute (§ 337 of the Tariff Act) for the second time in three months, a divided panel of the U.S. Court of Appeals for the Federal Circuit ruled that the term “articles” in § 337 is limited to tangible items, reversing the Commission’s finding of jurisdiction over electronic transmissions entering the United States. ClearCorrect Operating, LLC et al. v. Int’l Trade Comm’n, Case No. 14-1527 (Fed. Cir., Nov. 10, 2015) (Prost, J.) (O’Malley, J., concurring) (Newman, J., dissenting).
Appellant ClearCorrect manufactures orthodontic aligners. In the United States, ClearCorrect would scan a patient’s teeth and digitally recreate the tooth arrangement. The digital file was transmitted to Pakistan, where a new set of digital files of intermediate tooth positions was created. Those digital files were then transmitted back to the United States, where ClearCorrect would use a 3-D printer to make aligners from the digital files. The Commission found that transmission of the digital files into the United States was an importation of an “article” under § 337, that use of the digital files infringed method patents owned by intervenor Align Technology, and issued a cease and desist order to the Pakistani affiliate of ClearCorrect. ClearCorrect appealed both the merits and the Commission’s authority over importation of the digital files.
Before beginning its analysis, the majority argued that the en banc Federal Circuit interpretation of the term “articles…that infringe” in § 337, articulated in Suprema v. Int’l Trade Comm’n, (Fed. Cir. 2015) (IP Update, Vol. 18, No. 8 and IP Update, Vol. 18, No. 10), is not dispositive of the issue to be decided because “[Suprema] turned exclusively on the term ‘infringe’ as used in [§ 337],” and “the ‘articles’ in question in Suprema were physical objects, and thus do not inform the question before the Court.” The majority then reversed the Commission, finding that, under Chevron step one (whether the statute speaks to the precise issue under consideration), it was clear that the term “articles,” as defined by § 337, was limited to tangible goods. The majority looked to the original Tariff Act passed in the 1920s and cited contemporary dictionaries to support that “articles” was then commonly understood to mean tangible things. The majority further found that “articles” excluded intangibles because Custom’s tariff schedule did not include intangibles, and interpreting “articles” to include intangibles would create a violation with no remedy since intangible goods did not enter the United States through the Custom zone. Finally, the majority found that even if the term “articles” was ambiguous (under Chevron step one), the Commission’s interpretation of the term was unreasonable under Chevron step two and entitled to no deference. Judge O’Malley concurred, taking the further position that Chevron did not even apply to the Commission’s decision, because Congress did not intend to give the Commission jurisdiction over Internet transmissions.
Judge Newman dissented, agreeing with the Commission’s interpretation of “articles” as “articles of commerce.” The dissent noted Suprema’s statement that “the legislative history consistently evidences Congressional intent to vest the Commission with broad enforcement authority to remedy unfair trade acts,” and that there was no logical precedent for interpreting § 337 to cover digital data imported on a physical medium, which was unquestionably within the Commission’s authority, but excepting importation of the same data if done electronically. Judge Newman also noted that Customs itself considered electronic transmissions to be an importation, that other agencies had interpreted “articles” in the Trade Act to include intangible goods, and that Federal Circuit precedent held that lack of an effective remedy did not preclude a finding that § 337 had been violated.
Practice Note: The majority here comprised the same two judges who ruled against the ITC in the original panel decision in Suprema (IP Update, Vol. 16, No. 12), and Judge O’Malley (who authored the panel decision here) wrote the dissent in the Suprema en banc decision.Suprema is cited in the body of the ClearCorrect opinion solely for the notion that § 337 regulates international commerce, and that the ITC has authority to interpret its enabling statute where ambiguous. Finally, the majority noted, as in the original Suprema panel opinion, that the intervenor could seek relief in district court. The ITC may of course petition for en banc review (as it did in Suprema).