Saturday, October 18, 2014

Internet giants urge Federal Circuit to ensure file downloads can't be prohibited by the ITC

Less than week after I said I found myself in agreement with Google on many issues (software copyright being the key exception), there's a new cause on which I concur with them. While I come down on Google's side in the sense that the United States International Trade Commission (USITC, or just ITC) should not have jurisdiction over Internet data tranfers such as file downloads, my position is slightly more nuanced--but not to a determinative extent.

The Internet Association--whose members include the likes of Airbnb, Amazon, AOL, eBay, Expedia, Facebook, Google, Groupon, LinkedIn, Netflix, Rackspace,, TripAdvisor, Twitter, Uber, Yelp, and Yahoo!--has filed an amicus curiae brief (press release, brief (PDF)) with the United States Court of Appeals for the Federal Circuit urging the reversal of the ITC ruling in the Digital Models case. The short name of the case says it all: it's not about tangible products that U.S. customs officers could seize at the time of importation (which is what the ITC's IP enforcement is typically understood to be about) but involves digital models (of dental repositioning appliances) sent over the Internet (from Pakistan to the U.S.).

While no smartphones are accused in this particular case, the implications of the ITC's expansionism would be far-reaching and certainly affect mobile devices and mobile application software if the Federal Circuit didn't establish the clear limits Google and its allies (including some of its key competitors) propose.

Bloomberg's Susan Decker wrote an excellent summary of the case after the final ITC ruling in April. The aforementioned Bloomberg article mentions that the Motion Picture Association of America and the Association of American Publishers supported the complainant, hoping that this would make the ITC a suitable copyright enforcement venue for them as they combat pirated media content (movies, music, books, magazines, etc.), while Google backed the respondent because it wants the ITC to focus on import bans that can be enforced by U.S. Customs.

The ITC later stayed enforcement of its cease-and-desist order. It clarified that the stay was not ordered because of doubts over the correctness of the decision. I do, however, believe that the ITC has realized that this is a decision reasonable people, such as ITC commissioner David Johanson (who wrote a dissenting opinion), can disagree with.

While I disagree with its support of the ITC's stance, I do want to recommend this write-up by two Morrison & Foerster lawyers because it summarizes the issues in the case very well and makes a fairly compelling case for giving the ITC jurisdiction (or for why, in the opinion of the authors, the ITC has always had jurisdiction) over patent-infringing Internet data transfers. Messrs. Busey and Sigmon argue that "[h]ad the Commission found that it had no jurisdiction over electronic transmissions, then importers in certain industries--such [as] the software industry--would have been invited to circumvent the reach of Section 337 [the statute governing the ITC's unfair import investigations and exclusion orders] through use of the Internet." They also believe that 3D printing and similar technologies make it "important that the Commission continue to assert jurisdiction over modern forms of importation to prevent the erosion of the protection of intellectual property under Section 337."

I agree with the MoFo lawyers to a certain, limited extent. There is a risk of an end run around IP enforcement with the help of the Internet. In this particular case, the respondent, ClearCorrect, may very well have set up a certain operation in Pakistan to use technology there (in the generation of digital models for dental repositioning devices) that Align appears to have patented in the U.S. and some other jurisdictions, but not in Pakistan. It then imports a device into the U.S. market that is non-infringing per se, but which is a key part of an overall activity that would be infringing if conducted entirely in the United States (and if one agreed with the ITC's infringement and validity determinations). So this is, arguably, a circumvention case.

This background is the reason for which I wouldn't want to engage in ITC bashing. It's normal for judges--and the ITC has quasijudicial authority--to look for ways to enforce the law against attempts to circumvent it. I've seen it elsewhere. For example, the Munich I Regional Court at some point last year was inclined to order an injunction against Google Maps because the presiding judge felt it wouldn't have been the right outcome to hold no one responsible for an infringement, and only doubts about the validity of the Microsoft patent-in-suit, which was declared invalid this year, saved Google Maps in Germany. That said, I disagree with the ITC on Digital Models and I find it odd that on the one hand its Administrative Law Judges complain repeatedly about the trade agency's huge patent case load while on the other hand the ITC consistently declines to discourage the filing of certain categories of complaints that it could and should deem to be outside of its jurisdiction. Standard-essential patents, for example, do not belong there. Nevertheless the ITC has done as much as it could (despite the Obama Administration's veto of an import ban Samsung had won against Apple) to give SEP holders hope that they may still be able to win import bans over FRAND-pledged patents. And now, in Digital Models, the ITC is trying to open the floodgates. Over the years, the logic applied in that case could result in numerous ITC complaints targeting websites, cloud computing services, file sharing services, and in a worst-case scenario, small app developers. Defending oneself in the ITC is more expensive than in district court.

The Internet Association argues that cases involving digital data transfers belong in district court. For this type of issue, district courts indeed appear to be the more appropriate forum, though the juries that decide factual questions in that type of forum are, with a very few exceptions, much less competent than any reasonably experienced ITC judge.

While I can understand that the ITC doesn't want to let ClearCorrect get away with its circumvention tactics, there will never be a set of rules (or interpretation of a given set of rules) that can't be abused by at least one side (complainants seeking undue leverage or respondents circumventing U.S. law). The decisive question is whether, on balance, one set of rules, or one interpretation of the rules, is better policy than the other. Here, Align (the complainant against ClearCorrect) may have a reasonably good story to tell, but if it succeeded, patent trolls would leverage the ITC and harm not only the Internet industry but also Internet users (and potentially even small app developers, though I know I've just repeated myself for an obvious reason).

This reminds me of an op-ed by a former ITC commissioner that the Wall Street Journal published about a year ago, entitled "The International Trolling Commission." The subhead said that "[p]atent trolls find a friend in a federal agency that has drifted from its original mission." Affirmance of the cease-and-desist order in Digital Models would exacerbate this problem, possibly to an extent that is beyond anyone's imagination at this stage. I don't have much sympathy for the respondent in this case (despite being impressed by ClearCorrect having been described as America's fastest-growing health company a few years ago). Nevertheless, with a view to the overall public interest in reasonable IP enforcement, I concur with the Internet Assocation's amicus brief and hope that circuit judges with a particularly balanced approach will have a majority on the panel hearing this incredibly important appeal.

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