Movie, Web Sectors Braced for Court Ruling on Digital Transfers

A U.S. appeals court struggled over the rules to block electronic transmissions that violate U.S. property rights in a case that’s split the movie and Internet industries.

“Isn’t it telling that Congress is grappling with how to deal with digital transmissions?” Circuit Judge Kathleen O’Malley asked Tuesday in a case involving a patent dispute over invisible braces and the role of the U.S. International Trade Commission to monitor digital data.

The question is whether the trade agency, which has the power to block products at the U.S. border, can use that authority for electronic files being sent over the Internet. The agency said it has that right, and last year ordered a Pakistani company to stop sending files for making invisible braces that infringed patents owned by Align Technology Inc., maker of the Invisalign teeth-straightening system. The decision is on hold until this appeal is resolved.

The case has riveted the Internet, movie, music and publishing industries because the outcome could either create or shut off a potentially powerful tool in the fight against piracy websites. Hollywood wants to find new ways to shut overseas sites that are sending out illegal copies; while Silicon Valley argues such a step isn’t feasible considering how the global Internet works these days.

‘Gaping Loophole’

The ITC has the authority to block “articles” and the case before the U.S. Court of Appeals for the Federal Circuit hinges on defining that word. Align, backed by the movie, music and publishing industries, argues it encompasses all goods. To say otherwise would “create a gaping loophole in the statute,” said Align lawyer Stephen Kinnaird of the firm Paul Hastings in Washington.

ClearCorrect Operating LLC, which uses the treatment plans from its Pakistani partner to made models of braces in Texas, said it’s only tangible goods.

“An article is something that can be stopped at the customs house, stamped with a trademark, put on a rail line.” said ClearCorrect lawyer Michael Myers of McClanahan Myers Espey in Houston.

Congress never intended to give the trade agency authority for electronic signals, leaving that task to a communications regulator, Myers said. Congress has been holding hearings on how to deal with streaming data, he said.

Internet companies including Google Inc. and Facebook Inc., argue that an order from the ITC would amount to onerous demands that would force service providers to figure out from which country a file was sent. The Internet knows no boundaries and sends files using the most efficient route.

Facebook, Amazon.com

A decision “has sweeping implications for the Internet and the ability of companies to operate efficient, dependable global networks,” the Internet Association, whose members include Facebook, Google, Amazon.com Inc., Twitter Inc. and Uber Technologies Inc., said in a court filing.

Those concerns are a “red herring,” ITC lawyer Sidney Rosenzweig told the panel. The agency has no interest in policing services, phone calls or e-mails, and Internet service providers would be protected from any liability under the Digital Millennium Copyright Act if they take steps to prevent illegal postings, he said.

The issue is digital goods “that are bought and sold in commerce, exactly the way physical goods are,” Rosenzweig said.

The three judges on the panel said they know their decision, either way, could have broad ramifications beyond the dispute over braces.

“The world is changing more rapidly” than the laws governing it, said Chief Judge Sharon Prost.

3D Printing

It isn’t just movies and music. The Align case involves electronic dental treatment plans from Pakistan that are used to make 3D models of the invisible braces in Texas. As 3D printers become both more affordable and more precise, counterfeiters may bypass the physical customs house and instead transmit information from overseas across national borders undetected only to have someone in the U.S. print the product.

“We have the same problems that folks had in the 1920s when they wrote this” law creating the ITC, said Dan Robbins, the Motion Picture Association of America’s lawyer for technology legal work. “It’s going to become a bigger and bigger issue. If they duck it today, they’ll see it again.”

The case is ClearCorrect Operating LLC v. ITC, 14-1527, U.S. Court of Appeals for the Federal Circuit (Washington). The underlying case is In the Matter of Certain Digital Models, Digital Data and Treatment Plans for Use in Making Incremental Dental Positioning Adjustment Appliances, the Appliances Made Therefrom and Methods of Making the Same, 337-833, U.S. International Trade Commission (Washington).

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