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Thursday, December 3, 2015

Braces Case a Win for Tech, a Loss for Entertainment Industry

Posted by Armanino Technology Group

A closely watched court decision involving a patent dispute between two U.S. orthodontics companies is a win for tech firms, but a big blow to the entertainment industry and other sellers of digital content.

On November 10, a federal appeals court panel ruled that the International Trade Commission (ITC) does not have control over the electronic transmission of data to the U.S. The ITC has traditionally had the power to block the import of physical goods that infringe U.S. intellectual property laws, but the appeals court said the commission had overstepped its authority when it ordered retainer maker ClearCorrect to stop transmitting data to the U.S. from an overseas affiliate.

ClearCorrect scans U.S. customers’ mouths and sends the data to Pakistan, where it’s modeled into digital retainer prototypes. The prototype data is then sent back to ClearCorrect servers in the U.S., where the files are printed on a 3D printer. A competitor, Align Technology, charged that ClearCorrect’s computer modeling process in Pakistan infringed on Align’s patents, and the ITC investigated the complaint. They sided with Align and ordered ClearCorrect to stop importing the digital files.

When the federal appeals court reviewed the matter, however, they decided that the Tariff Act of 1930 (which gives the ITC control over imports) applies only to physical goods. The court said the ITC has no authority over digital transmissions.

Tech firms fear ITC control would constrain cloud

Open-internet advocates and tech firms, including Google, Netflix, Apple, Microsoft, Salesforce and Oracle, had fought the ITC’s action. They argued that giving the ITC control over data was impractical, and that it could interfere with cloud computing and restrict the efficient worldwide flow of information. For example, cloud-based companies wouldn’t be able to seamlessly route data to servers around the world if they were exposed to legal risks whenever they sent information to the U.S.

Movie, recording and publishing companies, however, were on the other side of the fight. These industries supported the ITC’s position and saw ITC oversight as a strong tool in their ongoing battle against pirated content.

The November ruling, a 2-1 decision by a three-judge panel, is probably not the end of the matter. Given the significance of the case, it is likely that the losing side will petition the court to have it heard again “en banc” by the full appeals bench of judges.

Technology companies face ongoing challenges, from subscription-based accounting issues in the software sector to supply chain disruptions in high tech. Armanino has the practical expertise to meet the industry’s diverse needs. We combine real-world experience with technical skill to help clients solve immediate problems and implement long-term strategies for success.


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