Recently, the U.S. Court of Appeals for the Federal Circuit ruled against the International Trade Commission’s (ITC) claim to have jurisdiction over “electronic transmission of digital data.” The court correctly recognized that the ITC’s interpretation of what constitutes an “article” of importation, but it went too far by including digital data in its definition. This was a troubling development, as the agency essentially ruled that its statutory powers of enforcement extended into the digital realm.
The court concluded that “electronic transmissions have some physical properties—for example an electron’s invariant mass is a known quantity—but common sense dictates that there is a fundamental difference between electronic transmissions and ‘material things.’” This distinction is important.
Had the ITC’s original interpretation of its statutory powers been upheld, the agency would have found itself with the power to regulate “electronic transmissions of digital data.” Meaning, all Internet traffic crossing into the United States would have been subject to the ITC’s authority. This would have spelled trouble for online commerce.
Traditionally, the ITC’s mission has been charged with making “determinations in proceedings involving imports claimed to injure a domestic industry or violate U.S. intellectual property rights.” As I detailed in a recent article, the case in question, ClearCorrect, LLC v. ITC, was fought over an intellectual property dispute.
ClearCorrect is a Texas-based company that contracted the 3D modelling of invisible dental braces to a Pakistani firm, which then retransmitted the digital files to be printed in the U.S. Invisalign, the company which holds a patent on the software protocols used to scan a patient’s teeth and produce the plastic braces, argued this was a violation of their intellectual property. Invisalign was concerned that this approach circumvented U.S. patent law and would allow domestic firms to skirt IP protections on domestic software patents. They brought their complaint to the ITC, and the agency ruled that it had the authority to regulate “electronic transmissions of digital data.” Although the reversal of this decision clearly limits the ITC’s powers to physical goods in the real world, the decision does not prevent Invisalign from seeking judicial redress in Federal Court.
While it is certainly important to provide the ITC with the necessary powers to curb violations of U.S. patents, applying this power to the Internet could produce a host of unintended consequences.
First, the means by which the agency would actually prevent digital data from crossing borders is uncertain. While shipments of bootlegged DVDs or products infringing U.S. patent laws can be seized by customs at shipping ports, seizing data is a much trickier proposition. Granting the ITC an expansion of its statutory purview could have had immensely negative consequences to the free and open flow of information, which is the lifeblood of the modern digital economy.
In August, the Niskanen Center, along with the R Street Institute and FreedomWorks, penned a letter to the ITC discussing the agency’s overreach. We argued that, “[a]dditional barriers to overcome in ‘exporting’ new ideas and services in digital form will only forestall continued progress in this emergent industry and lead to further balkanization of the Internet economy.”
This consideration seems to have influenced the court’s ruling. Writing in support of the majority opinion, Judge O’Malley also pointed out that “If Congress intended for the Commission to regulate one of the most important aspects of modern day life, Congress surely would have said so expressly. “
The court’s ruling will go a long way towards preserving the borderless Internet ecosystem. For consumers and producers, that’s a good thing.
Op-ed by Ryan Hagemann; originally published in Morning Consult