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Feb 22, 2016

Taking the teeth out of ITC patent infringement bans

Federal circuit court ruling limiting US International Trade Commission's authority over imports puts companies at risk as 3-D printing expands

When regulations that have long been used to protect companies from threats like patent infringement fail to keep pace with technological advances, where does that leave corporate governance?

For years the US International Trade Commission (ITC), an independent, quasi-judicial federal agency, has invoked Section 337 of the Tariff Act of 1930 to prevent articles that infringe on patents from being imported into the US. In November, a panel of judges from the US Court of Appeal for the Federal Circuit ruled that the ITC lacks authority to stop infringing data from being imported if the data is transmitted electronically. That could eliminate the ITC’s jurisdiction over fast-growing digital trade, as reported by the website CorporateCounsel earlier this month.

The infringing data in question relates to a system and methods for straightening teeth using clear aligners instead of braces, patents for which Align Technologies claimed in 2012 that ClearCorrect Operating infringed on. After an investigation, the ITC ruled in favor of Align in 2014 and ordered ClearCorrect to cease and desist from importing digital data sets from a subsidiary in Pakistan that were used to make the aligners through 3-D printing. ClearCorrect appealed to the Federal Circuit, which upheld the company’s argument that the definition of ‘articles’ under Section 337 refers only to physical objects and excludes intangibles such as digital data sets.

The ITC could recoup its authority in patent law if the full Federal Circuit court agrees to rehear arguments and reverses the panel decision, as CorporateCounsel reported.

Maya Eckstein, head of the intellectual property group at Hunton & Williams, has spent a lot of time thinking and writing about 3-D printing, which is already an enormous industry and on track to be a $20 billion industry by 2018. That will impact a huge portion of the manufacturing supply chain, she says.

‘3-D printing is implicated completely by the [Federal Circuit panel] decision,’ Eckstein says. ‘You’ll have digital files that people will access, legitimately or not, and then they’re going to provide those to 3-D printers – some will be home printers or printers used by professional counterfeiters – to 3-D print these counterfeit goods or goods with others’ registered trademarks on them without permission.’

Many of these digital files are being accessed illegitimately from abroad, and the transfer of such files into the US should be a major concern for companies nationwide, she says.

Even if the Federal Circuit decides to uphold the ITC’s jurisdiction over the transfer of digital files, ‘how it would enforce that jurisdiction or any exclusion orders is a big question mark in my mind,’ Eckstein says. ‘How do you stop that traffic? When you have a tangible article, whether it’s an iPhone or a printer, you can physically stop it at the border. How do you stop the transfer of a digital file? I’m convinced there are ways to do that, but the process needs to be put in place, I believe, for Customs to be able to do it, if ITC has that jurisdiction.’

And if in the end Section 337 of the Tariff Act can’t be used to bar imports of digital data files, it’s possible regulators could use the Digital Millennium Copyright Act (DMCA) instead, particularly if the digital files in question are imbedded with anti-circumvention functionalities to prevent them from being illegally accessed. ‘There are penalties under the DMCA for violating anti-circumvention. Then you can also send the DMCA takedown notices if the files are being stored on a particular website, as an example, the same as for downloading a song or movies,’ says Eckstein. This is what regulators used to take down the early music-sharing service Napster.

The optimal solution would be for Congress to go back and revise the language of statutes such as the 1930 Tariff Act to make them apply explicitly to digital transfers, she believes, especially since the applications of these statutes will continue to grow. ‘We saw it with respect to downloads of music. Now we’re going to see it with respect to downloads of files that will enable many more things to be made.’

Eckstein cites the recent announcement by GE Aviation that it plans to make at least 100,000 different aviation parts through 3-D printing by 2020. ‘If you get access to those files and then you provide them to a counterfeiter to print, and then it sells those goods, but they’re not as good, [think of] all the consequences that can come from that,’ she warns.

If there ever was an argument for expanding the skill sets of board members to include experience with technological innovation, the advent of 3-D printing and the massive disruptions it portends are it.