By Eric Schweibenz And Lisa Mandrusiak
On July 18, 2014, the U.S. Court of Appeals for the Federal Circuit issued its opinion in Align Technology, Inc. v. ITC (2013-1240, 1363).  This was an appeal from the International Trade Commission’s (“the Commission”) decision that it could review the ALJ’s Order determining that the accused devices were within the scope of the Consent Order issued in Certain Incremental Dental Positioning Adjustment Appliances and Methods of Producing Same(Inv. No. 337-TA-562).

By way of background, this investigation was based on a complaint filed by Align Technology, Inc. (“Align”) alleging violation of Section 337 in the importation into the U.S. and sale of incremental dental positioning adjustment appliances that infringed certain patents.  The Respondents in this investigation were OrthoClear, Inc.; OrthoClear Holdings, Inc.; and OrthoClear Pakistan Pvt, Ltd. (collectively, “OrthoClear”).  The ALJ terminated the original investigation based on a consent order, which prohibited “the importation, sale for importation, and sale in the United States after importation of incremental dental positioning adjustment appliances referenced in the complaint and any other articles manufactured in violation of the asserted patents or trade secrets.”

After suspecting that OrthoClear and others were violating the Consent Order, Align filed a complaint seeking an enforcement proceeding under Commission Rule 210.75.  See our March 5, 2012 post for more details.  The complaint alleged that parties were violating the consent order by continuing to practice prohibited activities by “importing, offering for sale, and selling for importation into the United States digital datasets.”  According to the enforcement complaint, the digital datasets are used to manufacture dental appliances in the U.S. 

When instituting the investigation, the Commission stated that a threshold issue is whether the accused digital datasets are within the scope of the consent order, and that the ALJ’s decision “should be issued in the form of an initial determination (‘ID’) under Commission rule 210.42(c).”   However, since the ALJ determined that the digital articles were within the scope of the Consent Order, ALJ Rogers issued Order No. 57, determining that the enforcement proceeding would continue.

The Respondents to the enforcement proceeding sought review of the Order, although Align and the Commission Investigative Staff (“OUII”) argued that review was impermissible because Order No. 57 was a non-final order rather than an ID.  However, the Commission determined that Order No. 57 constituted an ID, and on review, determined that the digital articles were not within the scope of the Consent Order and that the enforcement proceeding should be terminated.  See our February 26, 2013 post for more details.

The Federal Circuit began by noting that, although the Commission has broad authority to issue rules and regulations governing administration, “an agency must abide by its own regulations.”  In this case, the Court found that the Commission impermissibly “circumvented its own rules without waiving, suspending, or amending them” and as such, “its review of Order No. 57 was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’” 

Specifically, the Commission rules explicitly distinguish between rulings that must be issued as an ID, and those that must be issued as orders, and the Commission is only authorized to review IDs.  Rule 210.42(c) states that motions for termination (such as that determined in Order No. 57) shall be granted by ID, but denied by an order.  As such, the Court recognized that the ALJ “properly denied that motion via an order.”

The Federal Circuit dismissed the Commission’s arguments that it had discretion to construe the order as an ID, because the rules expressly state the contrary.  Furthermore, later amendments to the rule also support this interpretation, as the amendments designate additional motions as appropriately handled by ID in some instances and by order in other instances.  The Court also noted that Commission precedent “reflects that the Commission has historically declined to treat orders denying motions for summary determinations as [IDs].”  Last, according to the opinion, the Commission’s attempt to argue that it intended to invoke the “waiver” rule, allowing it to review Order No. 57, is an “improper post hoc rationalization.” 

Since the Commission’s decision was reversed based on this fatal procedural flaw, the Court also reviewed the decision substantively, to prevent the Commission from “propelling this case back to us without the errant procedural flaw but otherwise substantially unchanged.”  In that regard, the Court specifically held that it is not necessary for the Consent Order to explicitly reference digital data, and as such, the Commission’s determination that the digital articles were not within the Consent Order was also reversed.