Legalese Column: Int'l Trade Commission Can’t Stop Piracy

This article originally ran in the February 2016 issue of AVN magazine. Click here to see the digital edition. Before delving into this month’s topic, a quick note concerning the topic in the December issue is warranted. The topic of that column was a very important Supreme Court case involving arbitration. The decision now has come down, and the Court again has ruled in favor of arbitration and against California. The subject arbitration provision said that all disputes between the customers and DirecTV would be settled by arbitration unless the arbitration clause was invalid under the law of the customer’s state, which in this case was California—where courts had a penchant for throwing out arbitration clauses as unfair and had so held in this case. Once again, the Supreme Court sullied the California cases, holding that the Federal Arbitration Act was the law of the land, including of California; and California could not overrule it. The moral of the story is that, if you have an arbitration agreement with your customers that is properly drawn (meaning by an experienced lawyer, rather than copying someone else’s), you can prevent expensive litigation, including class actions. This is good for businesses, especially strip clubs. DirecTV, Inc. v. Imburgia, ___ U.S. ___, 2015 WL 8546242 (December 14, 2015). Now, this month’s topic comes from the United States International Trade Commission. (The what?) The reason this is important is that the subject decision has the effect of ruling that the ITC can stop importation of pirated movies only if they are physical objects, such as DVDs. It has no jurisdiction over internet piracy, which is where most of it arises. There probably is a good-size universe of lawyers who have no idea what the ITC is or what it does; so don’t feel so bad if you don’t. The ITC is a commission, like the Federal Communications Commission, the Securities and Exchange Commission and the one you probably know about, the Federal Trade Commission. Commissions are created by Congress. They are quasi-judicial bodies that act as prosecutor and judge in matters over which they have jurisdiction. Just as the FTC goes after unfair trade practices in the United States like dating sites with fake profiles, the ITC, amongst its other responsibilities involving international trade, goes after unfair trade practices, such as subsidies, dumping, and infringement of patents, trademarks, and copyrights, emanating from other countries. Like other commissions, it has a number of commissioners, no more than a simple majority of which can come from the same political party. The recent decision that is very relevant to this industry arises from a dizzying set of facts involving patent infringement. Importation of items that infringe a patent can be stopped by the ITC. The subject patent—don’t even try to understand it—had something to do with fixing crooked teeth. How it worked was that teeth would be examined in the United States; the digital data sent to Pakistan; someone there would undertake the process of designing the custom teeth-straightening device; and then the design would be transmitted over the internet to the United States, where it would be used to manufacture the teeth-straightening gadget, which would be applied to the patient’s teeth. Got it? The ITC’s claim was that the process undertaken in Pakistan was found to infringe the subject patent. (Recall that a patent can be on either a device or a process.) Now, there is no question that, had the patent-infringing process together with the manufacture of the physical teeth-straightening device taken place in Pakistan, the ITC could have blocked the import of the physical teeth-straighteners. That is because the product would have been manufactured by a process that infringed the patent; and selling such a product likewise infringes the patent. What the ITC was trying to do here was to stop the company in Pakistan from transmitting the data to the United States. The problem was that the ITC’s enabling statute allowed the Commission to go after “unfair methods of competition and unfair acts in the importation of articles ....” After the hearing, the Commission found that there was no difference between importing the design for the teeth-straightener and importing the item itself. Accordingly, the Commission ruled against the Pakistan company. The Pakistan company appealed to another place of which you may not be aware, the United States Court of Appeals for the Federal Circuit. The Federal Circuit, which covers the entire United States, primarily handles federal appeals involving patents. However, it is also responsible for some other specialized appeals, including those from ITC rulings. In a convoluted opinion essentially finding that electrons over the internet are not “articles,” the Federal Circuit reversed. Largely relying on dictionaries, the court essentially found that the ITC only has jurisdiction over importation of three-dimensional objects. ClearCorrect Operating, LLC v. International Trade Com’n, 2015 WL 6875205, ___ F.3d ___ (Fed. Cir., November 10, 2015). Likely, the case isn’t over. Like other circuits, the Federal Circuit allows for rehearing, either by the same three-judge panel that decided the case or the entire panel of judges. Moreover, Supreme Court review is available. Notably, the Supreme Court has been very hostile to the decisions of the Federal Circuit in recent years. Unless the result is overturned, however, the ITC will be powerless to stop offshore internet piracy. Look for Hollywood to jump into the fray. Clyde DeWitt is a Las Vegas and Los Angeles attorney, whose practice has been focused on adult entertainment since 1980. He can be reached at ClydeDeWitt@earthlink.net. More information can be found at ClydeDeWitt.com. This column is not a substitute for personal legal advice. Rather, it is to alert readers to legal issues warranting advice from your personal attorney.