HiRes (2)In a case much-watched by the entertainment and software industries for its potential impact on the internet, the U.S. Court of Appeals for the Federal Circuit has held that the U.S. International Trade Commission’s authority to regulate imported “articles that infringe” U.S. intellectual property rights does not extend to the “electronic transmission of digital data.”  By concluding that the authorizing statute—Section 337 of the Tariff Act—limits the ITC’s jurisdiction to “material things,” the decision eliminates the ITC’s ability to remedy infringements even where the offending digital data results in a manufactured product, such as in the emerging area of 3D printing.

The case—ClearCorrect v. ITC, 2014-1527—was an appeal from an ITC investigation of teeth aligners.  USITC Inv. No. 337-TA-833.  The process for making the accused aligners roughly involved taking a physical model of a patient’s teeth, 3D-scanning the physical model, and sending the corresponding digital file overseas (to Pakistan) where a final tooth-arrangement file was created.  ClearCorrect then downloaded the files in Texas from a server in Pakistan, after which the aligners were made in the U.S. via 3D printing from the downloaded files.  The ITC found that the digital models infringed patents held by complainant in the investigation (Align Technology) and issued an order to ClearCorrect to cease downloading the models and selling the 3D-printed aligners.

On appeal to the Federal Circuit, several outside groups filed briefs with the court taking positions on the ITC’s jurisdiction to regulate digital commerce.  The software industry argued against ITC jurisdiction for fear of disruption to the internet, while the entertainment industry argued that the ITC should have authority to combat electronic piracy.  In reversing the ITC, however, the majority opinion side-stepped the policy arguments.  Instead, it relied on its interpretation of “articles” as “material things,” a view that the dissent argued was incorrect and artificially narrow because the ITC could stop the same data if it was imported on a CD-ROM or other physical medium.

The ClearCorrect decision seems a strong candidate for review by the full Federal Circuit en banc.  In addition to the significant outside interest in the case, the ClearCorrect decision is arguably inconsistent with a recent, jurisdiction-affirming en banc opinion (Suprema v ITC) in which the Federal Circuit concluded that the same statutory provision at issue in ClearCorrect gave the ITC jurisdiction over articles that were not infringing at the time of importation, but that only became infringing when employed in a certain manner after they were imported into the U.S.  The ClearCorrect decision also seems likely to spark lobbying efforts by the entertainment industry and, perhaps other industry sectors (such as manufacturing) to expressly provide the ITC with some kind of authority over digital transmissions (or at least those that are merely the digital representation of a physical article as was the case in ClearCorrect).  In the meantime, the decision renders the ITC (although not federal district courts) powerless to assist in remedying intellectual property violations involving emerging technologies like 3D-printing, in which imported, electronically transmitted data is central to the infringement theory.