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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Using the International Trade Commission to Address Trade Secret Misappropriation Occurring Abroad

Posted in Espionage, Practice & Procedure, Restrictive Covenants, Trade Secrets

By Matthew Werber

The Federal Circuit caught the attention of the ITC and trade secret litigators alike when it ruled in TianRui Group Co. v. ITC that the ITC can exercise its jurisdiction over acts of misappropriation occurring entirely in China.

The Commission initiated Investigation No. 337-TA-655 based on allegations that TianRui and a group of related respondents unlawfully accessed and used Illinois-based Amsted Industries, Inc.’s proprietary ABC process to manufacture imported steel railcar wheels. After unsuccessfully attempting to license the ABC process from Amsted, TianRui hired several employees from one of Amsted’s Chinese vendors. After being brought to TianRui, the former employees disclosed Amsted’s confidential information and enabled TainRui to begin using the ABC process to make steel railcar wheel parts bound for destinations in the U.S. The parties did not dispute that the acts of misappropriation occurred entirely in China. Following a trial before an administrative law judge, the Commission ultimately found that TianRui violated Section 337 and issued exclusion and cease and desist orders barring the subject TianRui wheel parts from entry in to the U.S.

On appeal, the Federal Circuit affirmed the Commission’s determination. The majority found that 19 U.S.C. § 1337 (“Section 337”) — the statute that governs the ITC’s jurisdiction to investigate patent, trade secret and other intellectual property matters — focuses on the nexus between the imported articles and the unfair methods of competition rather than on where the misappropriation occurs: the determination of misappropriation was merely a predicate to the charge that TianRui committed unfair acts in importing its wheels into the United States. In other words, the Commission’s interpretation of section 337 does not, as the dissent contends, give it the authority to “police Chinese business practices.” It only sets the conditions under which products may be imported into the United States.

Less than eight months after the TianRui decision, Complainant SI Group, Inc., a Schenectady, NY based chemical manufacturer, followed Amsted’s footsteps by requesting that the Commission investigate acts of misappropriation occurring entirely in China. SI Group alleges that Sino Legend (Zhangjiagang) Chemical Co., Ltd. and a group of related respondents (collectively referred to as Sino Legend) unlawfully accessed SI Group’s trade secret process for making rubber resins and uses it to make imported resins .

According to the complaint, Sino Legend poached a plant manager from an SI Group manufacturing facility in Shanghai who disclosed SI Group’s trade secrets to Sino Legend and enabled Sino Legend to bring the process in its own facility. On June 20, 2012, the Commission, after considering the complaint, announced their vote to institute an investigation, Certain Rubber Resins and Processes for Manufacturing Same (Inv. No. 337-TA-849). The parties are now engaging in fact discovery and the trial is scheduled to begin in February 2013.

Considering the ITC as a Trade Secret Litigation Forum.

There is no question TianRui opened the ITC’s doors to trade secret holders seeking to remedy misappropriation occurring abroad because some trade secret holders may find that the ITC is their only viable option. Most trade secret litigation occurs in state and federal courts (primarily state court). Yet, as a general proposition, the misappropriation must occur within the U.S. to fall within the state and federal court’s jurisdiction and even then the misappropriators may flee the country to prevent effective service of process. Some U.S. companies have sought remedies in the country where the misappropriation occurred. Such efforts have resulted in varying degrees of success, however. SI Group, for example, alleges it pursued relief from Chinese authorities and courts. Yet, the Chinese courts have not taken any action according to SI Group’s complaint. As such, many anticipate the number of Section 337 trade secret complaints to increase.

Trade secret holders considering filing a complaint in the ITC should be aware of certain considerations unique to the ITC litigation. For example, unlike district courts, the ITC generally does not have the power to order monetary relief. Instead, Section 337 gives the Commission authority to direct that infringing articles be “excluded from entry into the United States.” Exclusion orders are enforced, in part, by U.S. Customs Border Protection (“CBP”) officials who are instructed to identify articles subject to the exclusion order and prevent their entry into the U.S. While not a monetary award, an exclusion order is nevertheless a very powerful remedy. In TianRui, for example, the Commission issued an exclusion order prohibiting entry of the subject TainRui steel railway wheels for a period of ten years.

U.S. companies considering the ITC should also be aware that the ITC is subject to certain jurisdictional limitations that are not at issue in state or federal court litigation. For example, the trade secret holder must show the existence of a “domestic industry,” or, generally speaking, an industry within the U.S. being affected by the infringer’s alleged wrongful acts. In TianRui, the majority concluded Amsted satisfied the domestic industry requirement because the imported TianRui wheels could directly compete with wheels made by Amsted in its manufacturing facilities in the U.S. Yet, not all trade secret holders can meet this standard, particularly those with little or no U.S. presence. For more information on this interesting issue, please see the Seyfarth Shaw LLP webinar When Trade Secrets Cross International Borders.