Expanding what until recently had been very limited options for U.S. companies to enforce their rights against Chinese companies misappropriating trade secrets, the Federal Circuit in TianRui Group Co. v. International Trade Commission, Fed. Cir., Case No. 2010-1395, held that the International Trade Commission has statutory authority to review and rule on conduct occurring in China in the course of a trade secret misappropriation investigation. The primary effect of this decision is that US companies are now afforded the ability to sue Chinese parties in the United States, an avenue previously foreclosed such companies because, generally, in such cases a substantial amount of the wrongful activity would have taken place in China, and the Chinese parties are thus beyond the reach of most long arm statutes.  In sum, the decision allows US companies through the International Trade Commission to block the importation of products produced by a foreign company using trade secrets stolen from a U.S. competitor.

The relevant factual particulars of TianRui are as follows. Amsted Industries, an American manufacturer of cast steel railway wheels, granted a license to Datong, a Chinese manufacturer of the same product, for a proprietary foundry process for the manufacture of these wheels. There was no question that the process was a trade secret belonging to Amsted. TianRui, another Chinese manufacturer, approached Amsted in 2005 and attempted to negotiate a similar license as Datong for the process. However, an agreement was never reached with Amsted. After the failure of the negotiations, TianRui hired away nine Datong employees trained in Amsted’s manufacturing process.  Notably, all of these former Datong employees had actual knowledge that the manufacturing process was a confidential trade secret belonging to Amsted, and moreover eight of the nine had signed confidentiality agreements with Datong covering, amongst other trade secrets, the Amsted process.  In addition to having their trade secrets misappropriated, Amsted was further injured because TianRui ultimately sold the wheels it manufactured with the process in the U.S. through a joint venture.

Amsted there after filed a complaint with the International Trade Commission, alleging that the importation of the wheels into the U.S. violated § 337 of the Tariff Act of 1930, 19 U.S.C. §1937, by reason of TianRui’s use of the Amsted manufacturing process which was developed in the U.S. and therefore subject to protection by U.S. trade secret laws.  TianRui interposed a defense that no action against it could lie because Congress did not intend for § 337 to apply to territories outside the U.S., including China. After hearing the matter, the International Trade Commission rejected TianRui’s reading of Congressional intent on § 337, and issued a limited exclusion order relating to the wheels produced with the Amsted manufacturing process. TianRui sought review of the decision by the Federal Circuit after the International Trade Commission elected not to review the decision itself.

Ultimately, the Federal Circuit found that § 337 was properly applied by the International Trade Commission based upon TianRui’s conduct within the U.S., specifically the importation of the wheels, by its joint venture, into the U.S. Significantly, the Federal Circuit further found that despite the fact that most of the offending conduct, the misappropriation of Amsted’s trade secret and production of the wheels using these misappropriated secrets, took place in China, the International Trade Commission’s exclusion order was nevertheless proper because the Commission was empowered under § 337 to set the circumstances pursuant to which products may or may not be imported into the U.S., including the exclusion of products found to be manufactured by means of misappropriated U.S. trade secrets.

In sum, an ITC proceeding can be a powerful tool to protect trade secrets that are misappropriated by the foreign competitors of U.S. companies.