United States: ALJ Finds No Misappropriation Of Trade Secrets

Last Updated: September 30 2016
Article by Jones Day

On September 22, 2016, Judge Lord issued the public version of her initial determination in Certain Activity Tracking Devices, Systems, and Components Thereof, Inv. No. 337-TA-963, finding no violation of Section 337. If upheld by the Commission, Judge Lord's ruling marks a rare denial of relief for allegations based on misappropriation of trade secrets.

The Case

The Commission instituted this investigation in response to a complaint filed by AliphCom d/b/a Jawbone and Body Media, Inc. alleging violations of Section 337 by reason of infringement of U.S. Patent Nos. 8,073,707, 8,398,546, 8,446,275, 8,529,811, 8,793,522, and 8,961,413 and misappropriation of trade secrets by Respondents Fitbit, Inc., Flextronics, International Ltd. and Flextronics Sales & Marketing. Judge Lord granted motions for summary determination that the asserted patents were directed to ineligible subject matter under 35 U.S.C. § 101, which were upheld by the Commission. The Investigation was terminated with respect to the patent-infringement allegations prior to the evidentiary hearing.

Withdrawn Trade Secret Allegations

Complainants' trade secret allegations were initially based on Respondents' misappropriation or threatened misappropriation of 154 different trade secrets. At the hearing, Complainants presented evidence with respect to 38 of the alleged trade secrets. After the hearing, Complainants limited their post-hearing briefing to five of the trade secret misappropriation allegations. Complainants moved to terminate the investigation as to the alleged trade secrets not addressed in their post-hearing briefs. Respondents opposed Complainants' motion and requested that the ALJ determine that the withdrawn trade secrets were not misappropriated. Judge Lord denied the motion and Respondents' request noting that Commission Rule 210.21(a)(1) only permits the termination of the investigation with respect to allegations made in the complaint, and that the specific trade secret allegations at issue were only presented during discovery. Judge Lord also held that there is no basis for adjudicating the merits of the withdrawn trade secret allegations stating that "[t]he purpose of [an] investigation is to determine whether there has been a violation of section 337, not to build a record for parallel proceedings."

Misappropriation of Trade Secrets Findings

The five remaining trade secret allegations in the Investigation related to 1) the type and location of wireless transceivers and antennas, 2) vendor information, and 3) process flows and equipment. The ALJ held that none of Complainants' trade secrets were misappropriated. Judge Lord found that the trade secrets at issue were not sufficiently identified with specificity and that even if they were that the factual record did not support a finding of misappropriation. With respect to the alleged vendor trade secrets, the ALJ found that information relating to vendors/suppliers that do "good work" is not a trade secret. Judge Lord also found that the alleged process flow information was not a protectable trade secret because it was publicly disclosed in a patent application and reasonably obtainable through reverse engineering.

Domestic Industry Findings

Unfair practices in import trade are unlawful if the "threat or effect" is, inter alia, "to destroy or substantially injure an industry in the United States." 19 U.S.C. § 1337(a)(l)(A)(i). Complainants based their domestic industry allegations on the substantial threat of future injury to its research and development conducted in the United States. However, in finding that the domestic industry requirement was not satisfied, Judge Lord noted Complainants did not tie the alleged misappropriated trade secrets to a specific future injury. Moreover, Judge Lord noted that there was no evidence connecting Complainants' sales to the alleged domestic industry in research and development.

Recommended Determination on Remedy

Complainants sought a limited exclusion order covering Respondents' products that benefit from the alleged trade secrets. The Commission has generally applied a rule that the duration of an exclusion order should be the time it would have taken to independently develop the trade secrets. Judge Lord found that the antenna related trade secrets would take one month to independently develop, that the vendor trade secrets would take "a few hours" to develop and that the process flow trade secrets would take two weeks to develop. Accordingly, Judge Lord recommended that should the Commission find that the alleged trade secrets were misappropriated, that an exclusion order only issue for the antenna and process flow trade secrets for one month and two weeks respectively. Judge Lord also recommended that, upon a finding of misappropriation, cease and desist orders should issue for the same duration of the exclusion order. Finally, Judge Lord found that there should be no bond for importation during the presidential review period.

Takeaway

Over the past ten years, Section 337 investigations based upon the misappropriation of trade secrets have almost universally resulted in remedial orders being issued by the Commission. While this Investigation may be an exception (depending on the outcome of the Commission's review), the ITC remains a favorable venue to bring allegations of trade secret misappropriation. When bringing allegations of trade secret misappropriation, it is important to ensure that such allegations are identified with sufficient specificity and that they can be tied to an injury (or threat of future injury) to the domestic industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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