ITC Does Not Have Jurisdiction To Block Digital Files

An important Federal Circuit decision was issued on November 10, 2015 in ClearCorrect Operating LLC v. International Trade Commission, No. 14-1527. A split (2-1) panel of the Federal Circuit ruled that the International Trade Commission (ITC) does not have jurisdiction over the importation of digital or electronic files.

The decision turned on the Federal Circuit’s interpretation of Section 337 of the Tariff Act, which provides the ITC with jurisdiction to block the importation of “articles” that infringe patents or are otherwise involved in unfair trade practices. 19 U.S.C. § 1337. The ITC had previously ruled that it has the authority to block the importation of digital files based on its own interpretation of the word “articles” in Section 337 to cover the electronic transmission of digital data.

The Federal Circuit performed a detailed, 20-plus-page statutory analysis of the word “articles” as used in Section 337. The majority reasoned, “[i]t is clear that ‘articles’ means ‘material things,’ whether when looking to the literal text or when read in context with view to the term’s place in the overall statutory scheme [and] common sense dictates that there is a fundamental difference between electronic transmissions and ‘material things.’” The majority decision, written by Chief Judge Prost and joined by Judge O’Malley, ultimately determined that the word “articles” as used in the statute “does not extend to electronic transmission of digital data” and that the ITC’s ruling to expand the scope of its jurisdiction to include electronic transmissions of digital data runs counter to the “unambiguously expressed intent of Congress.”

Judge Newman issued a 17-page dissenting opinion that would agree with the ITC’s interpretation, noting that it “is consistent with the language, structure, and purpose of Section 337, and decades of precedent concerned with digital data, electronic transmission, and infringing importation.”

The practical effect of the decision is that certain types of alleged infringement will not be actionable by the ITC, even if the patent owner proves that infringement did occur. Patent owners will be free to pursue such claims in district court, but without the benefits that the ITC offers (e.g., greater speed and likelihood of injunctive relief).

The ITC may ask the full Federal Circuit to rehear the case en banc, as previously occurred in the Suprema case concerning whether the ITC’s jurisdiction over “articles that infringe” extended to inducement under 271(b). A Federal Circuit panel initially reversed the ITC and held that that the ITC lacked jurisdiction when direct infringement does not occur until after importation. Later, however, the Federal Circuit granted rehearing en banc and interpreted “articles that infringe” as extending to such situations. Notably, Judge Prost and Judge O’Malley (i.e., the two judges in the majority in ClearCorrect) dissented in the Suprema en banc decision and wanted to interpret “articles that infringe” more narrowly. This may give the ITC reason to hope for a similar “flip” concerning the definition of “articles” itself.

Download the full Federal Circuit decision here.