U.S. trade body cannot block Internet transmissions: appeals court

By Andrew Chung

NEW YORK (Reuters) - A U.S. trade agency does not have power to regulate digital data, a federal appeals court ruled on Tuesday in a case involving a dental brace company's effort to block a rival's electronic transmissions from entering the country.

The appeals court decision negates a U.S. International Trade Commission (ITC) ruling last year in favor of Align Technology, Inc, the San Jose, California-based maker of the popular Invisalign plastic braces. Align Technology shares slid 2 percent.

Align had accused competitor ClearCorrect Operating LLC of infringing several patents. The ITC, which can block products from entering the United States, ordered ClearCorrect to stop transmitting digital models produced by technicians in Pakistan to its Texas manufacturing facility.

Technology companies and the entertainment industry have followed the case closely because it could affect Internet transmissions and the fight against piracy.

The U.S. Court of Appeals for the Federal Circuit in Washington, D.C. said data is not a tangible good over which the ITC has authority.

Common sense "dictates that there is a fundamental difference between electronic transmissions and 'material things,'" the court said in a 2-1 decision.

Critics said the ITC overstepped its authority when it ordered the company to cease transmission of digital models, because U.S. law gives the commission authority over unfair practices "in the importation of articles."

The ITC expanded its jurisdiction to say digital data is included in the definition of "articles."

High-tech companies like Google Inc and other Internet-related groups said global Internet transmissions should flow unimpeded and the ITC should not be authorized to regulate them.

But associations for recording artists and Hollywood film studios saw the ITC's decision as an effective tool to fight piracy, most of which happens through electronic downloads and streaming.

On Tuesday, the appeals court majority said articles are material things and thus the commission has no jurisdiction over the case.

ClearCorrect's lawyer Michael Myers said in an interview this was the "correct result because the ITC was never intended to be the policeman of Internet or TV transmissions or radio signals."

A representative for Align could not immediately be reached for comment.

Circuit Judge Pauline Newman dissented from the opinion, saying that the commission must have the power to block the latest forms of infringing technology.

Align's shares were trading at $65.74, down $1.34 from Monday's close.

The case at the ITC is No. 14-1527.

(Reporting by Andrew Chung; Editing by Alexia Garamfalvi and David Gregorio)