Sorry, MPAA, Court Rejects Your Plan For A Secret SOPA At The ITC

from the try,-try-again dept

Last year, when the Sony emails leaked, and it was revealed that the MPAA was still totally focused on bringing SOPA back through alternative means, one of the strategies explored was getting the International Trade Commission (the ITC) to set up a sort of secret SOPA. The ITC is an already problematic government agency that is already widely abused by patent holders. Basically, you can ask the ITC to "block" some sort of "illegal foreign competition." And for patent holders, this has meant going to the ITC and claiming that a foreign firm (or a domestic firm that is importing products) is violating its patents, and thus the ITC should issue an injunction blocking any such products from entering the US at its borders. This is already troublesome in the patent context, because the ITC process is entirely separate from either the USPTO's review of patents or the federal courts -- and actually has different rules. So even if a court might decide that a patent is invalid under existing rules, the ITC may have already started blocking the import of products, claiming patent infringement. It basically allowed patent holders to get two bites at the apple (sometimes, quite literally at Apple).

The MPAA's theory was that if the ITC can block "infringing products" at the border, why can't it basically do the same thing for "infringing content." The goal of the strategy -- which even the MPAA's legal experts admitted was a long shot -- was to find a key case, in which "digital goods" of some sort went before the ITC, and see if it could get a ruling in its favor. It found that case in the ClearCorrect case, in which the company ClearCorrect faced off against the ITC over its 3D printing of clear plastic braces, custom-designed for each patients' teeth. While another company holds patents on a similar process, ClearCorrect tried to get around this by doing the computer work in Pakistan, and then sending the completed digital model back to the US to be printed. Thus, ClearCorrect argued, it was not violating the patents in the US and was just getting a digital file. The ITC ruled against ClearCorrect, and the company appealed the ITC's ruling out into the federal court system where the case was heard by the appeals court for the Federal Circuit (CAFC). The MPAA weighed in supporting the ITC, hoping to give teeth to the idea that the ITC can block "digital goods" at the border for "infringement." Thankfully, the good folks at Public Knowledge weighed in on the other side, noting what a massive and dangerous expansion of power this would be for the ITC in a very digital world.

Thankfully, today, the CAFC sided with ClearCorrect and against the ITC (and the MPAA), noting that the ITC has no jurisdiction to issue injunctions on digital products. The decision was written by CAFC chief judge, Sharon Prost (who has really shaken up CAFC in a good way since taking over last year). Prost correctly notes that the ITC's original decision was a massive, unauthorized expansion of the ITC's jurisdiction, without the necessary Congressional approval. In short:

The Commission’s decision to expand the scope of its jurisdiction to include electronic transmissions of digital data runs counter to the “unambiguously expressed intent of Congress.”

Prost notes that the ITC's charter allows it to issue injunctions to block the import of "articles" at the border, and "it is clear that 'articles' means 'material things,' whether when looking to the literal text or when read in context 'with a view to the term's place in the overall statutory scheme.'"

The judge notes that, while digital content has some sort of physical aspects, that does not make it the same thing as physical property:

We recognize, of course, that electronic transmissions have some physical properties—for example an electron’s invariant mass is a known quantity—but commonsense dictates that there is a fundamental difference between electronic transmissions and “material things.”

Going into more detail, Prost basically just reads the law:

The Commission’s jurisdiction to remedy unfair international trade practices is limited to “unfair acts” involving the importation of “articles.” 19 U.S.C. § 1337(a). Thus, when there is no importation of “articles” there can be no unfair act, and there is nothing for the Commission to remedy. Here, the only purported “article” found to have been imported was digital data that was transferred electronically, i.e., not digital data on a physical medium such as a compact disk or thumb drive. The Commission’s April 3, 2014, majority opinion devotes twenty-one pages of analysis to the question of whether “articles” encompasses digital data and ultimately concludes that it does.

But Judge Prost notes that the ITC is just wrong about that. And then starts digging in deeper and deeper about how ridiculous the ITC was in trying to make this massive landgrab. She spends pages citing the dictionary (actually, multiple dictionaries) as to why the ITC is just wrong. And then moves on to point out that it's pretty clear what Congress meant and the ITC seems to have just decided for itself to try to expand its powers. It's a pretty thorough smackdown. After making it clear that the ITC clearly misread the statute, Prost then goes on (even though she doesn't have to) to smack down the ITC's interpretation as "unreasonable." Again, she returns to the dictionary and notes that it appears the ITC looked at it, and then decided to pretend it said something different.

The Commission’s analysis of dictionary definitions evidences the irrationality of the Commission’s interpretation of the term “article.” While the Commission ostensibly analyzes various dictionary definitions, it fails to adopt a definition consistent with any of the definitions it references. For example, as discussed in the prior section, the Commission turns to the 1924 edition of the Webster’s dictionary for the definition of “article,” but rather than adopt that definition it concludes that it will “embrace a broader meaning that describes something that is traded in commerce.” ... In other words, it generates its own definition, unrelated to the definition provided by the dictionary.

Furthermore, the Commission inexplicably cites to several dictionaries in two footnotes that support “articles” being defined as “material things,” but provides no analysis as to why these dictionaries should not be considered.

Even worse, she notes that the ITC not only misread the legislative history on the Tariff Act, but appears to have simply cut out a key phrase that undermines its argument. Specifically:

The Commission’s Opinion cites the Senate Report, S. Rep. 67-595, as authority for this conclusion and then quotes it as follows:

The provision relating to unfair methods of competition is broad enough to prevent every type and form of unfair practice and is, therefore, a more adequate protection to American industry than any antidumping statute the country ever had.

However, the actual quote reads as follows:

The provision relating to unfair methods of competition in the importation of goods is broad enough to prevent every type and form of unfair practice and is, therefore, a more adequate protection to American industry than any antidumping statute the country ever had.

.... The Commission’s omission of the phrase, “in the importation of goods” is highly misleading; not only was a key portion of the quote omitted, but it was omitted without any indication that there had been a deletion. Furthermore, while we may agree that the quote, as incorrectly stated by the Commission, would indicate a broad authority for the Commission, the phrase “in the importation of goods” clearly limits the Commission’s authority. And as we discussed above, it limits it in such a way as to exclude non-material things. Because the Commission uses this misquote as its main evidence that the purpose of the act was to cover all trade, independent of what form it takes, the Commission’s conclusion regarding the purpose of the Act is unreasonable.

Yeah, simply deleting the phrase that undermines your argument, without even putting in some "..." or something is pretty bad.

There's a concurring opinion from Judge Kathleen O'Malley that is also a good read, noting how ridiculous it is that the ITC magically thinks it has the right to regulate pretty much the entire internet, without any actual expertise or mandate from Congress:

The Commission has concluded that it has jurisdiction over all incoming international Internet data transmissions. It reaches this conclusion despite never having purported to regulate Internet transmissions in the past, despite no reference to data transmissions in the statute under which it acts, despite an absence of expertise in dealing with such transmissions, and despite the many competing policy concerns implicated in any attempt to regulate Internet transmissions. The Internet is “arguably the most important innovation in communications in a generation.”... If Congress intended for the Commission to regulate one of the most important aspects of modernday life, Congress surely would have said so expressly.....

Although the Commission’s jurisdiction over imported physical goods is undeniable, it is very unlikely that Congress would have delegated the regulation of the Internet to the Commission, which has no expertise in developing nuanced rules to ensure the Internet remains an open platform for all.... Instead, the responsibility lies with Congress to decide how best to address these new developments in technology.....

Indeed, Congress has enacted laws and debated bills whose intent is to balance an interest in open access to the Internet and the need to regulate potential abusers.... Not once in these debates has Congress said or implied that it need not concern itself with these issues because it had already delegated the authority to do so to the Commission.

Good stuff. O'Malley is actually arguing that the majority decision doesn't even need to go through the whole "Chevron" test it does, about interpreting the law because it's so blatantly obvious that the ITC has no authority here, but if it must go through with that interpretation test, then she agrees with Judge Prost that the ITC is just wrong.

There is a dissent, from Judge Pauline Newman who basically says "well, the ITC regulates international commerce, and commerce today is digital, so it's all good."

The purpose of Section 337 to provide a facilitated remedy against infringing imports is beyond dispute. The panel majority’s removal of this remedy from a preeminent form of today’s technology is a dramatic withdrawal of existing rights, devoid of statutory support and of far-reaching impact. The majority’s ruling, that digital goods cannot be excluded under Section 337 because digital goods are “intangible,” is incorrect.

Given all that, don't be surprised to see an attempt to appeal this to the Supreme Court (or en banc for CAFC). But, at least for now this is a good and important decision that wipes out one of the MPAA's secret plans to bring SOPA in through the back door. Kudos to Public Knowledge for focusing in on this case and making the case for keeping the internet open.

Filed Under: cafc, copyright, digital goods, itc, sopa
Companies: clearcorrect, mpaa