The Software IP Report

A Deeper Meaning in the Federal Circuit’s Exclusion of “Digital Goods” From ITC Jurisdiction?

The Federal Circuit’s recent denial of a rehearing en banc of its decision in ClearCorrect Operating, LLC v. ITC, 810 F.3d 1283 (Fed. Cir. 2015), confirms that the International Trade Commission’s jurisdiction under Section 337 of the Tarriff Act, 19 U.S.C. § 1337 does not include digital items.  ClearCorrect Operating, LLC v. ITC, No. 2014-1527 (Fed. Cir. March 31, 2016).  In concurring and dissenting opinions concerning the denial of the petition for en banc rehearing, Chief Judge Prost and Judge Newman went another round in disagreeing about the definition of “article” in Section 337.  Judge Newman’s lone stand, and her colleagues’ more limited view of Section 337, is not news.  Nonetheless, I flag this decision as an example of the broader trend in the law to limit patent protection for digital products.

You may recall that, as the Federal Circuit panel decision explained, “the accused ‘articles’” in this case were “the transmission of the ‘digital models, digital data and treatment plans, expressed as digital data sets, which are virtual three-dimensional models of the desired positions of the patients’ teeth at various stages of orthodontic treatment’ (‘digital models’), from Pakistan to the United States.”  810 F.3d at 1287.  The panel, consisting of Chief Judge Prost and Judges Newman and O’Malley, held 2-1 that the digital models were not “articles” and that the ITC had no jurisdiction to stop importation.

In her current dissent, Judge Newman emphasized that “digital goods” are “are imported, bought, and sold; they are subject to the patent laws, and have been the subject of many infringement suits.”  Judge Newman further noted that “[i]nfringement does not depend on whether the digital goods are carried on a hard substrate, or electronically.”  From this basis, and extrapolating from a long list of other authority that Judge Newman said had extended protection to “digital goods,” Judge Newman concluded that such goods were “articles” within the meaning of Section 337.  Chief Judge Prost, concurring in the decision to deny the petition for en banc rehearing, responded that “these wholly separate statutory regimes have no bearing on Congressional intent regarding Section 337.”

But perhaps the legal dispute obscures a deeper philosophical debate.  Section 337 does not define “article.”  A court could probably find a lot of justifications for various definitions of that term, and for including or excluding various categories of “goods” in that definition.  So at some level surely Chief Judge Prost and Judge Newman are really debating this question: should software and digital data be afforded patent protection?

While there are those in the tech community who would answer this question with an unequivocal “no,” my guess is that most lawyers, judges, and business people who worry about software intellectual property would say that of course, even after Alice, Mayo, and Bilski, software should enjoy some protection under the U.S. patent laws.  The question is simply where to draw the line.  In that vein, ClearCorrect could be viewed simply as the court trying to draw that line – between providing and not providing protection for digital data – with respect to a specific statute.

Well, maybe.  But on another level, surely what is going here is part of the broader trend to control the reach of software and other patents.  This trend is exemplified by Alice, Mayo, Bilski, and other jurisprudence under 35 U.S.C. § 101, as well as other recent developments such as revisions to the Federal Rules of Civil Procedure including the elimination of Form 18, decisions interpreting 35 U.S.C. §§ 112(b) and (f), and, I would argue, the Supreme Court’s grants of certiorari in recent patent cases, including to consider damages issues in Samsung Electronics Co. v. Apple Inc. and Stryker Corporation, et al. v. Zimmer, Inc.