ITC Weighing Patent Jurisdiction Over Digital Products

ITC Weighing Patent Jurisdiction Over Digital Products

In a classic case of intellectual property law trying to keep up with technology, the U.S. International Trade Commission is expected to decide this week whether it has jurisdiction over infringing products that are in digital rather than physical form.

Attorneys say it’s not surprising that this question would arise in the digital age, and it was only a matter of time before it would have to be addressed by the courts. But it didn’t seem that this case would be the one to tip the judicial scales when San Jose, Calif.-based Align Technology sued ClearCorrect Inc. for patent infringement back in 2011 in U.S. District Court in Houston. In fact, it started out as a routine infringement suit between two rival companies that make clear, nearly invisible orthodontic braces.

In the ensuing years, the case has become an international investigation at the ITC, with major companies and associations weighing in, including Google Inc., Nokia, the Motion Picture Association of America and the Association of American Publishers. The outcome will not only affect these companies and other organizations, but it is also likely to define the reach and power of the ITC for years to come.

“If you had told me in 2011 that this case would end up at the ITC and end up involving companies like Google, I wouldn’t have believed it,” said Thomas Counts, a partner at Paul Hastings who represents Align Technology.

It was only after Align, the maker of Invisalign braces, sued Texas-based ClearCorrect for patent infringement that attorneys for the company discovered its rival’s operations extended to Pakistan. In Pakistan, ClearCorrect generated digital models of patients’ teeth. Those files were then downloaded in Texas, printed on 3D printers and used to make patients’ braces.

In March 2012, Counts filed a complaint with the ITC, seeking a finding of infringement of 40 claims in seven different patents and a ruling that would block the infringing items from entering the United States. Counts also obtained a stay in the district court case while the ITC case proceeded.

A little more than a year later, ITC Administrative Law Judge Robert Rogers ruled that ClearCorrect had indeed infringed Align Technology’s patents. In an 815-page decision, he found that 37 of the asserted claims were infringed—one of the highest number of infringed claims in recent ITC decisions, according to Counts. And Rogers recommended a cease-and-desist order be issued to stop ClearCorrect’s digital imports.

That May 2013 ruling [PDF], called an “initial determination,” is what has been under review by the full commission. And while such a review is a fairly standard procedure at the ITC, the issues involved have made this case about much more than a fight between two companies correcting crooked teeth.

The ITC, created in 1918, is empowered to issue exclusion orders that bar the importation of infringing products. When it finds that patent infringement has occurred, it can order U.S. Customs and Border Protection to prevent the infringing goods from entering the United States. Historically, the agency has dealt with infringing imports brought in on planes, trains and ships—items such as shoes, car parts and mobile phones.

But electronic transmissions sent through the Internet—goods like MP3 files, e-books, software, movies and digital “blueprints” that can be used to print out tangible items on 3D printers—cannot be physically stopped at a nation’s borders. An exclusion order would be of no use, as customs agents are not able—or at least not authorized—to monitor the movement of digital transmissions.

In the battle between ClearCorrect and Align Technology, the ITC judge recommended the issuance of cease-and-desist orders to stop ClearCorrect’s digital imports—something that had only been done twice before. Cease-and-desist orders offer enforcement actions that carry heavy civil penalties if not obeyed.

ClearCorrect requested the full commission review the decision. And the commission, recognizing the important questions being raised by the case, decided it would not only look at the infringement issues, but would also address the question of whether the agency can police digital imports in the same way it can physical goods.

“The Internet is the shipping lane of the 21st century,” Counts said. “If the ITC doesn’t have the power to stop digital imports, it could become less relevant, and companies will lose a legal mechanism they rely on to protect their intellectual property.”

ClearCorrect’s lead attorney, Michael Myers of the Houston firm McClanahan Myers Espey, sees it differently. “The ITC only has jurisdiction over articles,” he said. “The courts have already decided that raw information—intangible information—is not an article.”

Clearly, the ITC is not taking this decision lightly—it has delayed its decision at least three times. Attorneys for both sides have said this isn’t surprising, as an appeal to the Court of Appeals for the Federal Circuit is likely. To show that it has examined the broader issues involved, the commission in January requested public comments on the issue of whether it has jurisdiction over electronic importation of nontangible articles. Industry giants responded, ending any previous perception that this was solely a case about orthodontia.

On one side is Google, which filed a brief [PDF] arguing that Section 337 of the Tariff Act—the law that enables the ITC to conduct investigations and provides a way for companies to combat unfair trade practices and enforce U.S. intellectual property rights at the border—does not extend to the Internet. “The provisions of Section 337 and its legislative history demonstrate that ‘articles,’ as used in the statute, relate to physical objects and not electronic transmissions,” Google wrote. The company dismissed the fact that the ITC previously issued cease-and-desist orders—most notably in a case referred to as Hardware Logic [PDF]. “It is Google’s position that Hardware Logic was decided incorrectly,” the company wrote.

On the other side, Nokia [PDF], the MPAA [PDF] and the AAP [PDF] all submitted briefs arguing that the ITC’s jurisdiction must extend to cover electronic transmissions—and already does.

Nokia, which owns telecommunications network equipment that runs on patented software, argued that the courts have already determined that electronically transmitted software can be a “component” of patent-infringing goods, and, therefore, the ITC has the right to use its enforcement powers against infringing transmissions.

The MPAA warned of the dangers posed by copyright-infringing digital imports, stressing that most of the motion picture industry’s infringement losses now come from illegal downloads and streaming. Quoting the ITC’s rationale in a previous case, the MPAA wrote, “it would be anomalous for the Commission to be able to stop the transfer of a CD-ROM or diskette containing the respondents’ software, but not be able to stop the transfer of that very same software when transmitted in machine readable form by electronic means.”

The AAP also wrote of the risks posed to its industry by digital imports, noting that the market for e-books and digital publications is growing rapidly. The fact that available remedies to stop infringing imports were designed in an era focused on physical goods “does not mean that the ITC is without jurisdiction to protect those same goods as they transition from physical to digital formats that no longer proceed through ports of entry,” the association wrote. “The Supreme Court made clear … that Section 337 applies to importation ‘regardless of the mode in which it is effected.’”

Barring another delay, the ITC is expected to issue its decision Friday.

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