The ITC Tries an En Banc Shot to Redefine Its Regulatory Authority

In our recent post, Living in a Nonmaterial World: Determining IP Rights for Digital Data, we discussed the potential impact of the Federal Circuit decision in ClearCorrect v. ITC, 2014-1527, in which 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 decision limited the regulatory jurisdiction of the U.S. International Trade Commission (ITC) to articles that are considered physical products. The implications of the decision are far-reaching since the Internet of Things touches on most industry sectors. As previously noted, the decision has been supported by open-Internet advocacy groups, characterizing the decision as a “win for the Internet,” while other groups (including the dissent to the opinion) see the decision as a significant setback in the fight against overseas piracy of patented and copyrighted works.

On January 27, 2016, the ITC petitioned for rehearing en banc on the Panel decision. The brief opens with the statement referring to the question of whether the term “articles” in section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337 should be limited to physical products as a “precedent-setting question of exceptional importance.” The brief goes on to state that answering the question in the affirmative would result in evasion of section 337 by a respondent that 3D prints infringing products in the United States using imported datasets representing those products.

In the petition, the ITC made a number of arguments why the Panel erred in its decision to limit the agency’s authority to regulate electronic transmissions. Among the arguments, the ITC claims that the Panel erred in holding that “articles” is an unambiguous term meaning “material things,” and thus failed to properly apply the Chevron two-step test. This test is a two-part analysis applied when a court needs to determine what standard of review should be applied by the court to a government agency’s own reading of a statute that the agency is charged with administering. The two-step test comes from Chevron U.S.A. v. NRDC, where the Supreme Court upheld the Environmental Protection Agency’s interpretation of the Clean Air Act of 1977. The Supreme Court wrote:

First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute … Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.

Chevron U.S.A. v. NRDC, 467 U.S. 837 (1984), 842–843

Thus, the ITC argued that because the Panel’s definition of “material thing” is at odds with how “article” is defined by the Court of International Trade and elsewhere in the Tariff Act, the term “article” is ambiguous. Therefore, it would follow that, under Chevron, it is the agency’s prerogative to choose among the alternative definitions and the agency must be affirmed if its choice is reasonable. The ITC also argued that the Panel erred in defining “goods” as being limited to “material things” and “inanimate objects” while ignoring other dictionaries that support the ITC’s position and pointing out inconsistencies with the Panel’s definition in its other decisions and cited sources.

Given the importance of the issue and the impact on various U.S. industries, it seems certain that the full court will agree to weigh in. How the en banc court will decide is another question.