No ITC Authority over Digital Transmissions, Says Split Panel

In a split decision last week, the Federal Circuit held that the Tariff Act of 1930—which gives the ITC authority over unfair acts involving the importation of “articles”—does not give the ITC authority over the electronic transmission of digital data, like the 3D digital representations at issue here.

The ITC had previously found that digital representations could be “articles that . . . infringe” under Section 337 and issued an exclusion order preventing the electronic transmission of ClearCorrect’s digital representations. On appeal, ClearCorrect argued that the ITC erred because the term "article" in the statute does not include digital data.

Chief Judge Prost wrote the majority opinion (joined by Judge O’Malley), siding with ClearCorrect and holding that a digital representation—here of teeth aligners—is not an “article.” She stressed that the ITC’s jurisdiction is limited to “‘unfair acts’ involving the importation of ‘articles.’” Since there was “no importation of ‘articles,’” “there is nothing for the Commission to remedy.” She also questioned how the an exclusion order preventing importation of electronic transmissions could, in practical terms, be enforced by Customs.

The majority also addressed whether the ITC’s holding should be afforded Chevron deference. Regarding step one of Chevron—whether Congress has directly spoken to the precise question at issue—the majority held that Congress had addressed the issue, emphasizing that virtually all relevant, contemporaneous dictionaries defined articles as material things. As for step two of Chevron, the majority explained that the ITC should not be afforded deference because it impermissibly construed the Tariff Act by failing to properly analyze the plain meaning of “articles.” In particular, the Commission failed to properly analyze the statute’s legislative history, and improperly relied on congressional debates. Notably, the majority criticized the ITC for misquoting a Senate Report it cited for authority.

The majority concluded by reiterating its holding in Bayer AG v. Housey Pharmaceuticals, Inc., in which the Court held that Congress should be the body expanding particular statutes if the Court is wrong in its interpretation.

Circuit Judge O’Malley concurred with the majority but went further. In her view, Chevron did not apply at all because Congress clearly did not intend to give the ITC the authority to regulate digital transmissions. Citing Supreme Court precedent, Judge O’Malley noted that “Congress must ‘speak clearly if it wishes to assign to an agency decisions of vast economic and political significance.’”

In dissent, Judge Newman stated that, in her opinion, digital goods are within the ambit of the Tariff Act. She stated: “The statute was designed to reach ‘every type and form’ of unfair competition arising from importation.” The Tariff Act’s definition of “article,” thus “includes any commodity, whether grown, produced, fabricated, manipulated, or manufactured,” and is meant to be broad and include forms of articles unknown at the time of its passing. Judge Newman also supported the ITC’s interpretation of the statute and indicated that it should be entitled to deference.