E-News No.46

E-News No.46

ITC Needs “Material Things” In A Digital World

by Kenneth R. Adamo, Eugene Goryunov, Jon Carter and Aaron Resetarits (Kirkland & Ellis LLP – USA)

ClearCorrect Operating, LLC v. Int’l Trade Comn’n, 810 F.3d 1283 (Nov. 10, 2015), reh’g en banc denied 2016 WL 1295014 (Mar. 31, 2016).

On November 10, 2015, the U.S. Court of Appeals for the Federal Circuit (“CAFC”) reversed the International Trade Commission (“the Commission”), holding that the Commission’s jurisdiction did not extend to the importation of digital information. The 1930 Tariff Act is limited to the importation of “material things.” On March 31, 2016, the CAFC declined to rehear its decision en banc (with a strong dissent), setting the stage for a certiorari petition to the U.S. Supreme Court.

Background
Align Technology, Inc. (“Align”) petitioned the Commission, under 19 U.S. C. § 1337 (“Section 337”), to investigate alleged patent infringement by ClearCorrect Operating, LLC (“ClearCorrect”). ClearCorrect manufactures aligners that, like braces, are used to reposition a patient’s teeth. ClearCorrect’s manufacturing process involves an international entity transmitting digital information used to create the aligners to a U.S. entity. The Commission instituted an investigation and an Administrative Law Judge (“ALJ”) held that ClearCorrect infringed Align’s patents. The Commission reviewed and agreed with the ALJ that Section 337 vested the Commission with jurisdiction to investigate Align’s allegations because the importation of “articles” encompasses importation of digital information into the U.S. ClearCorrect appealed to the CAFC.

Section 337 “Articles” Are “Material Things,” Not Electronic Transmissions
The Commission’s decision was based on its interpretation of the term “articles” in Section 337. The CAFC reviewed the Commission’s decision under the two-step framework of Chevron v. Natural Res. Def. Council and concluded that the Commission’s jurisdictional finding was both contrary to Congress’s intent and an unreasonable interpretation of Section 337.

A. Chevron Step One

Applying step one of Chevron, the CAFC concluded that Congress unambiguously expressed its intent to define the term “articles” to mean “material things,” not including digital information. The CAFC first looked to contemporaneous dictionaries that defined the term “articles” to mean “material things,” not digital information. The CAFC also looked to Congress’ use of the term “articles” throughout Section 337 and observed that if “articles” were to include intangible things—such as digital information—then many provisions of Section 337 would be superfluous. For example, “electronic transmissions of digital data could not be excluded in the fashion contemplated by the Act.” The CAFC noted that Congress used the words “goods” and “articles” synonymously. It was well-understood in 1930 that “goods” were “limited to movables” such as “material things.” The CAFC thus reasoned that the same understanding should apply to the term “articles.”
The CAFC concluded that “the literal text, the context in which the text is found within Section 337, and the text’s role in the totality of the statutory scheme all indicate that the unambiguously expressed intent of Congress is that ‘articles’ means ‘material things’ and does not extend to electronically transmitted digital data.”

B. Chevron Step Two

Applying step two of Chevron, the CAFC found that the Commission’s interpretation of the term “articles” was unreasonable. In particular, the CAFC concluded that “the Commission failed to properly analyze the plain meaning of ‘articles,’ failed to properly analyze the statute’s legislative history, and improperly relied on Congressional debates” in reaching an erroneous interpretation. The CAFC faulted the Commission for adopting a definition inconsistent with contemporaneous dictionaries. The CAFC also faulted the Commission for supporting its interpretation on an incomplete review of the legislative history. The legislative history, when read in its entirety, limits the Commission’s authority and excludes nontangible items.

Conclusion

The term “articles” in the 1930 Tariff Act means “material things;” it does not extend to digital information. Practitioners should monitor further developments at the CAFC, and possibly at the U.S. Supreme Court.