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Client Alerts

The Long Arm of the ITC: Federal Circuit Extends ITC's Reach, Upholding Exclusion of Products Manufactured in China Using Misappropriated Trade Secrets

October 18, 2011

Client Alerts

The Long Arm of the ITC: Federal Circuit Extends ITC's Reach, Upholding Exclusion of Products Manufactured in China Using Misappropriated Trade Secrets

October 18, 2011

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On October 11, 2011, a divided panel of the Court of Appeals for the Federal Circuit interpreted Section 337, the International Trade Commission’s governing statute, as giving the ITC authority to investigate and grant relief against products that are manufactured abroad using misappropriated trade secrets. The case is TianRui Group Co. v. U.S. International Trade Commission, case no. 2010-1395 (Fed. Cir. Oct. 11, 2011). What makes the case unique and one of first impression is that, while it has long been accepted that the ITC’s authority to investigate “[u]nfair methods of competition and unfair acts” includes trade secret misappropriation, all of the acts relating to misappropriation in this case occurred outside the United States. The complainant, Amsted Industries Inc., a domestic manufacturer of cast-steel railway wheels, owned a trade secret process for manufacturing such wheels known as the “ABC process.” Amsted had ceased using the ABC process in favor of a different one and chose to license the ABC process to a number of licensees. The respondents, Chinese companies TianRui Group Co. Ltd. and TianRui Group Foundry Co. Ltd. (collectively, “TianRui”), attempted to license the ABC process from Amsted in 2005, but the parties could not reach an agreement. After the failed negotiations, TianRui hired nine employees away from one of Amsted’s Chinese licensees, Datong ABC Castings Co. Ltd., and began producing wheels using the ABC process. Amsted initiated an ITC investigation, accusing TianRui of misappropriating the ABC process. The administrative law judge found “overwhelming direct and circumstantial evidence that TianRui obtained its manufacturing process for cast steel railway wheel[s] through the misappropriation of [Amsted’s] ABC Trade Secrets.”TianRui argued that all of the conduct alleged to have constituted trade secret misappropriation—namely, that TianRui hired Datong employees knowledgeable about the ABC process and that those employees relayed their knowledge about the ABC process and documents describing the process to TianRui—occurred in China. Thus, according to TianRui, Section 337 could not apply where all of the conduct occurred outside the United States.

Because trade secrets are typically governed by state law, the Federal Circuit first analyzed what law should be applied in the context of a Section 337 investigation. The court rejected Amsted’s argument that Illinois trade secret law governed, holding instead that “a single federal standard” should determine what constitutes trade secret misappropriation under Section 337. The court indicated that the Uniform Trade Secrets Act would be most appropriate, even while finding that state trade secret laws diverged little from the federal act.

The court then turned to the main issue of “whether section 337 applies to imported goods produced through the exploitation of trade secrets in which the act of misappropriation occurs abroad.” The court analyzed the statutory language and legislative history in view of the “longstanding principle of American law” that statutes should be construed as applying only within the territorial jurisdiction of the United States absent clear congressional indication to the contrary. The panel concluded that the presumption against extraterritoriality does not apply because Section 337, by its nature, is not limited to domestic activities, and because the ITC’s exclusion order affects foreign conduct only to the extent it results in the importation of goods into the United States causing domestic injury (injury is a necessary element of proof in a case like this that involves certain unfair acts; in this case, trade secret misappropriation). Thus, the panel concluded that the ITC “has authority to investigate and grant relief based in part on extraterritorial conduct insofar as it is necessary to protect domestic industries from injury arising out of unfair competition in the domestic marketplace.”

The court also decided an ancillary issue that further aids companies looking to enforce trade secret rights via the ITC. Amsted did not even practice its ABC process. Those familiar with ITC practice will recall that in typical cases, such as those involving patent infringement, the complainant must show the existence of a domestic industry relating to the articles protected by the patent concerned. TianRui argued that there could be no Section 337 violation because Amsted did not practice the ABC process. The Federal Circuit held that, because trade secret misappropriation falls under the general “unfair acts” heading of Section 337(a)(1)(A), there is no need to show a nexus between the domestic industry and the specific trade secrets at issue. Instead, it was sufficient for Amsted to show the existence of a domestic industry for the products generally and that TianRui’s unfair practices threatened to “destroy or substantially injure” that industry.

The Federal Circuit has now clarified that the application of Section 337 is not based on where the misappropriation occurs, but rather on the nexus between the imported articles and the unfair methods of competition. Moreover, a company that petitions the ITC need not show that it is even using the misappropriated trade secret. This decision has wide-ranging application for any company that believes its trade secrets have been misappropriated—anywhere in the world—by companies offering competing products for sale in the United States.

For further information, contact:

Andrew Kopsidas, Principal
Washington, DC
kopsidas@fr.com

 

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