Hands Off the Internet, Commission!

By George W. Thompson

Ruling on case involving dental retainers
Ruling on case regarding ITC authority on international transmission of data under the Tariff Act involving dental retainers and patent infringement

What happens when a Great Depression-era law meets up with digital data transmissions?  According to the U.S. Court of Appeals for the Federal Circuit, they don’t meet up at all.  In a significant clarification of the U.S. International Trade Commission’s authority under Section 337 of the Tariff Act of 1930 (codified at 19 U.S.C. § 1337), the court determined that “electronic transmissions of digital data” are not “articles” within the statutory purview. The decision likely will have ramifications far beyond the particular circumstances of the case, Clearcorrect Operating, LLC v. International Trade Commission, No. 2014-1527.

The Commission had determined it had jurisdiction over a complaint alleging that certain  methods of forming dental appliances infringed a U.S. patent.  The accused imports were electronic transmissions of dental aligner models and related data prepared abroad using information previously sent from the United States. The patent in question covers “methods of forming dental appliances”, which the foreign-produced models allegedly infringed.

Data Transmissions Are Not “Articles”

The Federal Circuit’s majority opinion focused on Section 337’s applicability to the “importation” of “articles” excludes the electronic transmission of data.  Applying the methodology for statutory interpretation set forth in Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), the court first determined that the language extending coverage to “articles” is limited to “material things”, which digital transmissions are not.  The opinion reviewed dictionary definitions, both around the time of Section 337’s passage and today, as well as the statute’s grounding in merchandise-based trade.  It also considered the inapplicability of the statutory remedies, exclusion orders and cease and desist orders, to electronic transactions.  In short, the statute’s clear and unambiguous language compelled the more limited view of its coverage.

Nor was the Commission’s construction of the statute permissible under the second step of the Chevron analysis, as it was based on misinterpretation of the definitions it cited and failed to take account of the legislative history.

The concurring opinion stated there was no need even to address the second Chevron factor since there was no ambiguity in the language to open the way for agency interpretation.  Moreover, the Commission had never previously sought jurisdiction over electronic transmissions, and Congress had never expressed any interest in the agency having such authority.

High Stakes Battle

In one sense, the Clearcorrect decision is a garden-variety Chevron analysis, albeit at great length and with substantial detail.  Proponents of expanded coverage had their work cut out for them given the common definition of the word “articles” to mean tangible things, as well as the statute’s previous focus on merchandise. The absence of an enforcement mechanism also highlights the awkwardness of the Commission’s position.  Electronic transmissions do not undergo an entry process, so there can be no enforcement by U.S. Customs of a finding that the accused items violated the statute.

While I don’t want to over- or underestimate its consequences, the Clearcorrect outcome is very important.  It forestalls Commission coverage of an entire class of international transactions. In theory, any electronic transmissions that could be alleged as involving “unfair acts” would have been fair game under the Commission’s interpretation.  No doubt, the potential availability of Section 337 to thwart digitally-based activity explains the participation of the recording and motion picture industries’ trade associations as amicus curiae in the appeal.

We’ll see whether this decision ends the process.  At a minimum, I would expect the appellee to seek reconsideration en banc to restore its victory before the Commission.  If that doesn’t work, perhaps there will be a drive for a legislative change, to bring Section 337 into the digital age. For now, however, the statute will remain limited to its traditional coverage.


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