United States: An Exceptional Decision: The ITC Stays Cease And Desist Orders Issued In The Dental Position Adjustment Appliances Investigation

On June 11, 2014, the U.S. International Trade Commission ordered the stay of its own cease and desist orders previously entered against ClearCorrect Operating, LLC (CCUS) and ClearCorrect Pakistan (Private), Ltd. (CCPK) (collectively, "ClearCorrect") in 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 Same, Inv. No. 337-TA-833.  While noting that the ITC has never before stayed one of its own remedial orders, the Commission harkened back to its previous decision in the case to reiterate that the issue of whether electronic transmissions are "articles" presented an "admittedly difficult question."  It then considered the balance of harms and determined that they weigh in ClearCorrect's favor and support the entry of a stay.¹

As we reported in April, the Commission issued a determination in Certain Digital Models, Digital Data, and Treatment Plans, concluding that electronic files are "articles" within the meaning of Section 337(a)(1)(B) and that transmission of such files constitutes "importation" under Section 337(a)(1)(B).  Consistent with its determination, the ITC issued cease and desist orders directed to electronic transmissions of ClearCorrect.  The orders prohibited ClearCorrect from importing, marketing, selling, advertising, or distributing digital data and treatment plans that infringe five of the patents asserted by Align Technology, Inc. (Align), maker of the Invisalign system used to straighten teeth.

On May 2, 2014, ClearCorrect moved the Commission for a stay of the cease and desist orders pending appeal to the Federal Circuit pursuant to section 10(d) of the Administrative Procedure Act, 5 U.S.C. § 705, noting the "potentially catastrophic consequences" of the cease and desist orders, including the ruin of CCPK's business and the disruption of ClearCorrect's manufacturing operations.²  On May 14, 2014, Align and the Commission Investigative Attorney (Staff Attorney) filed oppositions to the motion.³

In its motion, ClearCorrect noted that the issue of whether electronic transmissions are "articles" within the meaning of section 337 was a difficult question for the Commission to resolve.⁴  It then argued that the orders will cause irreparable harm to ClearCorrect because the orders will destroy CCPK or cause significant lay-offs, disrupt ClearCorrect's operations, and permanently impair ClearCorrect's vendor/vendee relationship — even if ClearCorrect prevails on appeal.⁵  In addition, ClearCorrect argued that the public interest favors a stay because doctors have no adequate substitute for ClearCorrect's appliances in the domestic market and will be forced to buy expensive new equipment.⁶  ClearCorrect further argued that potential harm to Align is insignificant because Align and ClearCorrect do not share customers.⁷

In response, Align argued that ClearCorrect cannot demonstrate that the issue is a difficult one because the Commission ultimately entered a decision premised on an interpretation that is entitled to deference.⁸  Align also asserted that ClearCorrect could not demonstrate that ClearCorrect would face irreparable injury absent a stay and that ClearCorrect only alleges harm to CCPK, which is not related to ClearCorrect's U.S. operations.⁹  Align also asserted that ClearCorrect was essentially stealing Align's sales, and that Align would suffer price erosion due to ClearCorrect's conduct.¹⁰  The Staff Attorney agreed that ClearCorrect failed to satisfy the test for a stay.¹¹

After considering the motions and reviewing relevant portions of the record, the Commission determined to grant ClearCorrect's motion to stay the cease and desist orders.  The Commission noted that the legal question in the case is a difficult one, and that its April opinion acknowledged that the construction of the term "articles" is a difficult question in part because this term is not expressly defined in the statute.¹²  In addition, the Commission ruled that the balance of hardships "tilts in favor" of ClearCorrect. ¹³

In particular, the Commission declined to accept Align's argument that ClearCorrect's sales were sales lost by Align and that Align would suffer price erosion due to ClearCorrect's conduct.¹⁴  The Commission noted that Align's pending district court suit against ClearCorrect provided a forum for any infringement damages that could accrue during the stay.¹⁵ The Commission also pointed out that Align failed to show that its prices were ever linked to ClearCorrect's behavior.¹⁶

Acknowledging that there is a public interest in enforcing valid patents, the Commission noted that "the legal issue presented in this case may have particularly significant impact on the legal strategies pursued in future investigations, which will benefit from the guidance provided by the court."¹⁷  The Commission determined that the "equities of the case suggest that the status quo should be maintained."¹⁸  In making its determination, the Commission re-referenced what it termed the difficult question surrounding electronic transmissions and emphasized that this stay determination "should not be viewed as a sharp departure from prior determinations denying stays," stating that the circumstances of most investigations do not justify a delay in enforcing statutory remedies against adjudged infringers.¹⁹

Footnotes

1.   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 Same, Inv. No. 337-TA-833, Comm'n Op. at 10 (June 11, 2014) (Comm'n Stay Op.).

2. Respondents' Motion to Stay Cease and Desist Orders at 6-7 (May 2, 2014) (ClearCorrect Mot.).

3. Align's Opposition to Respondents' Motion to Stay Cease and Desist Orders (May 14, 2014) (Align Opp.);  Response of the Office of Unfair Import Investigations to Respondents' Motion to Stay Cease and Desist Orders (May 14, 2014) (IA Opp.).

4. ClearCorrect Mot. at 1-2.

5. Id. at 2.

6. Id.

7. Id.

8. Align Opp. at 3-4.

9. Id. at 10.

10. Id. at 12, 16.

11. IA Opp.  at 4-8.

12. Comm'n Stay Op. at 6.

13. Id. at 8.

14. Id. at 8-9.

15. Id. at 8.

16. Id. at 9.

17. Id.

18. Id. at 11.

19. Id. at 10-11.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.