(Bloomberg) -- Align Technology Inc. lost an appeals court bid to block digital transmissions to the U.S. of dental aligners made by rivals in a case that had pitted Google Inc. against movie studios.
The U.S. International Trade Commission doesn’t have the authority to regulate electronic transmissions, the appeals court said in an opinion posted on its electronic docket.
The case focused on 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. It quickly got swept into the bigger fight among the Internet, movie, music and publishing industries over how to thwart online piracy -- leading tech companies and Hollywood studios to weigh in on different sides.
Align closed down 1.5 percent to $66.10 in New York trading, after falling as much as 3.6 percent.
The U.S. Court of Appeals for the Federal Circuit, in a 2-1 ruling, said the law is limited to tangible goods. At issue was the definition of the “articles” that the ITC can block.
An analysis of dictionary definitions and the history of the law “all indicate that the unambiguously expressed intent of Congress is that ‘articles’ means ‘material things’ and does not extend to electronically transmitted digital data,” Chief Judge Sharon Prost wrote for the majority.
The Align case involves electronic dental treatment plans. Align, maker of the Invisalign teeth-straightening system, sought to prevent ClearCorrect Operating LLC from obtaining digital models and treatment plans that were developed electronically in Pakistan. ClearCorrect uses the data to make 3D models of the invisible braces in Texas.
The trade agency said the data infringed Align’s patents, and ordered the file transmissions stopped.
Entertainment companies said the ITC had the potential to become a powerful tool in the fight against illegal websites or file-sharing. They argued that digital data is the modern equivalent of tangible goods.
“This ruling, if it stands, would appear to reduce the authority of the ITC to address the scourge of overseas websites that engage in blatant piracy of movies, television programs, music, books, and other copyrighted works,” the Motion Picture Association of America said in a statement.
MPAA members include studios owned by Walt Disney Co., Viacom Inc., Sony Corp., Twenty-First Century Fox Inc., Comcast Corp. and Time Warner Inc.
Internet companies like Google and Facebook Inc. argued that the ITC’s ruling didn’t take into account how the Internet works and would impose unfair demands to figure out from which country a file is sent. The Internet knows no boundaries and sends files using the most efficient route, they said.
The ruling is a “victory for the Internet ecosystem and its users,” said Abigail Slater, vice president of legal policy at the Internet Association, a lobby that includes Google, Facebook, Amazon.com Inc., Netflix Inc. and Salesforce.com Inc.
“This landmark patent law case has enormous implications for cloud computing, the free flow of information between countries, and the future of a free and open Internet,” she said.
In her dissent, Circuit Judge Pauline Newman said the ITC was correct to expand the law “to encompass today’s forms of infringing technology.”
The law “was enacted to facilitate the protection of American industry against unfair competition by infringing imports,” Newman wrote. “The statute was designed to reach ‘every type and form’ of unfair competition arising from importation.”
Circuit Judge Kathleen O’Malley said that Congress was unlikely to give the ITC the authority over digital goods because it “has no expertise in developing nuanced rules to ensure the Internet remains an open platform for all.”
“If Congress intended for the Commission to regulate one of the most important aspects of modern-day life, Congress surely would have said so expressly,” O’Malley wrote.
The ruling “helps to ensure that Internet users have unfettered access to the free flow of information that has proved so useful for innovation and free expression,” said Charles Duan, a lawyer with consumer group Public Knowledge that had submitted written arguments in favor of ClearCorrect’s position.
ClearCorrect’s lawyers and a spokeswoman for Align didn’t immediately return messages seeking comment. Align can ask that the case be heard by all active judges of the court. While the Federal Circuit doesn’t agree to such rehearings that often, a 2-1 split increases the odds.
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).