Living in a Nonmaterial World: Determining IP Rights for Digital Data

The U.S. International Trade Commission (ITC) regulates U.S. trade and oversees Section 337 investigations that address unfair competition based on alleged infringement of intellectual property rights. The ITC has been a popular alternative to litigation in district courts because of the relatively swift resolution it provides. (Final phases of the investigations typically occur 12 to 18 months from initiation.) However, a 2015 Federal Circuit decision has limited the ITC’s authority to regulate “articles that infringe” U.S. intellectual property rights and that are imported into the U.S. In ClearCorrect v. ITC, 2014-1527, the appeals court held that the “articles that infringe” are limited to “material things” and thus do not include “electronic transmission of digital data.”

The ClearCorrect case was an appeal from an ITC investigation (USITC Inv. No. 337-TA-833) of teeth aligners that allegedly infringed complainant Align Technology’s patents. More specifically, ClearCorrect used a method for making teeth aligners that involved making a physical model of the patient’s teeth, scanning the model in 3D and transmitting the digital file overseas to Pakistan for creating a final file, which was subsequently downloaded in Texas from a Pakistani server. The accused aligners were made from the final file in the United States by 3D printing. The Administrative Law Judge (ALJ) found infringement and recommended that the Commission issue a cease-and-desist order directed to ClearCorrect to prohibit importation of the digital files.

In the Notice of Commission Determination to Review the Final Initial Determination of the ALJ, one of the questions posed was “[d]oes the language and legislative history of Section 337 provide a basis for interpreting ‘articles’ to cover electronic transmissions?” The Commission ultimately agreed with the complainant and found on April 2014 that the digital model used to make the accused aligners infringed complainant’s patents and issued cease-and-desist orders barring ClearCorrect from importing the data sets. In so doing, the Commission agreed with the ALJ that the ITC had jurisdictional authority over electronically imported data under Section 337.

The decision was appealed to the Federal Circuit. Google and Apple filed amicus briefs supporting ClearCorrect and argued that the ITC decision allowed the ITC to improperly regulate all online commerce, while the Motion Picture Association of America and the Recording Industry Association of America filed amicus briefs supporting Align Technology and argued that the decision helped protect against piracy. This past August, the Federal Circuit reversed the ITC and based its opinion on an interpretation of “articles” as “material things.”

Judge Sharon Prost stated that “[t]he 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.’” She went on to say: “[w]e recognize, of course, that electronic transmissions have some physical properties—for example an electron’s invariant mass is a known quantity—but common sense dictates that there is a fundamental difference between electronic transmissions and ‘material things…’” The dissent, however, criticized the majority opinion and noted that under the rationale the ITC could stop the same data if it was sent across U.S. borders on a physical medium like a CD-ROM.

In either event, the ClearCorrect decision has wide implications for a variety of industry sectors, especially those involved with the Internet of Things. While the decision has been supported by open-Internet advocacy groups, characterizing the decision as a “win for the Internet,” other groups see the decision as a significant setback in the fight against overseas piracy of patented and copyrighted works. The decision also has relevance to gaming companies that transfer game data and assets across the U.S. border. As an example, if a gaming company that sells augmented reality games in the United States incorporates allegedly infringing elements and features that are implemented through imported data, the ClearCorrect decision suggests that the ITC would lack jurisdiction over such a case.

Whether an en banc review is on the horizon is yet to be seen. What is clear is that the courts and agencies continue to grapple with regulating ever evolving technology that focuses on the digital rather than the physical.