Federal Circuit Overturns ITC Data Transmission Blocking; En Banc Appeal Seen Possible
A three-judge panel of the U.S. Court of Appeals for the Federal Circuit voted 2-1 Tuesday to overturn the International Trade Commission's ruling that it possesses jurisdiction to block the transmission of digital information. Experts and those close to the case told us it may eventually be heard en banc. The case, closely monitored by copyright and anti-piracy advocates (see 1508120070), concerns the appeal by corrective orthodontic device manufacturer ClearCorrect of a 2014 ITC decision prohibiting the company's affiliate in Pakistan from sending digital molds of patients' teeth to ClearCorrect headquarters in Houston, due to the alleged infringement on patents held by industry competitor Align Technology.
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Judges Sharon Prost and Kathleen O'Malley concurred that the ITC lacked jurisdiction when it ruled to block electronic data transmissions, but differed in their reasoning behind ruling in favor of ClearCorrect. Judge Pauline Newman dissented. The court's decision mainly revolved around the interpretation of Section 337 of the 1930 Tariff Act and whether it gives the ITC jurisdiction over the importation of digital goods.
"The Commission's decision to expand the scope of its jurisdiction to include electronic transmissions of digital data runs counter to the 'unambiguously expressed intent of Congress,'" Prost said in her opinion. Prost called the ITC's decision to expand its jurisdiction "unreasonable," and said Section 337 was established by Congress to govern the enforcement of physical, not electronic, articles. In oral argument (see 1508120006), ITC attorney Sidney Rosenzweig said the word "articles" includes digital material, such as the type being transmitted by ClearCorrect Pakistan into the U.S. "'Articles' is defined as 'material things,' and thus does not extend to electronic transmission of digital data," said Prost. O'Malley, while agreeing ITC was in the wrong, disagreed with the Chevron due deference framework used by Prost to reach her decision, and said Congress hasn't delegated the authority over digital transmissions to the ITC, and thus the court needn't apply the framework to the agency's interpretation of its governing statute.
In her dissenting opinion, Newman said the ITC "correctly applied" the Tariff Act and precedent to encompass "today's forms of infringing technology." Section 337 "was enacted to facilitate the protection of American industry against unfair competition by infringing imports," Newman said in her dissent. "The statute was designed to reach 'every type and form' of unfair competition arising from importation." ITC didn't comment.
"We are obviously pleased with the victory," ClearCorrect General Counsel Michael Myers told us. Although ClearCorrect received a favorable result from the three-judge panel, Myers said he wouldn't be surprised if the case would be heard en banc, and potentially appealed to the Supreme Court: "I think the conditions are ripe for a further appeal."
Sapna Kumar, a University of Houston Law Center associate professor specializing in the application of administrative law to patent law, agreed there's a "very high likelihood this will be heard en banc." Kumar said the decision is "very unusual" because the judges essentially reached three separate opinions, and because of the framework used by Prost to reach the decision in favor of ClearCorrect. If the case were heard en banc, "I'm not sure it would come out the same way," said Kumar. She said the recent Federal Circuit in favor of the ITC in its case against Suprema, which gave increased deference to the commission over certain patented articles used after import, "threw everything we knew out the window." Because of Suprema, Kumar said she "could see this getting reversed" but can't even begin to guess exactly how the full court would rule.
A spokesman for the MPAA, which supported ITC in the case and filed amicus curiae with the court, said it will continue to back the commission in its efforts and will be "watching closely for further proceedings" in the case. "We are disappointed at the Federal Circuit panel's 2-1 ruling that the International Trade Commission does not have the authority to block the importation of 'articles' that consist of infringing digital transmissions," said the spokesman. "This ruling, if it stands, would appear to reduce the authority of the ITC to address the scourge of overseas web sites that engage in blatant piracy of movies, television programs, music, books, and other copyrighted works."
Charles Duan, patent reform project director at Public Knowledge, which also filed amicus curiae brief, said in a statement Tuesday the decision is "a big win" for the open Internet. "By rejecting the ITC's attempt to expand its jurisdiction, the Federal Circuit helps to ensure that Internet users have unfettered access to the free flow of information that has proved so useful for innovation and free expression."