United States: Supreme Court May Consider ITC's Authority Over Trade Secret Matters

Last Updated: November 29 2016
Article by Trade Secrets Watch

Here at TSW, we continue to watch closely developments in the Sino Legend v. ITC case. In September, Sino Legend petitioned the Supreme Court for a writ of certiorari to review whether Section 337 of the Tariff Act of 1930 allows the ITC to adjudicate cases involving allegations of trade secret misappropriation occurring entirely in a foreign country. This week, we summarize the relevant law, background, and the legal basis of Sino Legend's petition.

Relevant Law

Section 337(a)(1)(A) prohibits "[u]nfair methods of competition and unfair acts in the importation of articles." If the ITC finds a violation of this section, it can order an exclusion of infringing articles from the United States. The Federal Circuit has construed this section to encompass claims of misappropriation of trade secrets.

Background Regarding the ITC's Investigation and Subsequent Appeal

SI sued Sino Legend for trade secret misappropriation in China, alleging that Sino Legend misappropriated trade secrets relating to the synthesizing of certain resins that are used to manufacture tires. The Chinese court ruled that Sino Legend had not misappropriated SI's trade secrets.

As reported by TSW here, SI then filed a complaint in the ITC. The Commission instituted an investigation in 2012. In response, Sino Legend argued that the complaint did not give rise to a Section 337(a)(1)(A) violation because that section does not apply to trade secret misappropriation that occurs entirely outside the United States. The presiding ALJ dismissed Sino Legend's arguments, noting that the Federal Circuit's TianRui decision stands for the proposition that the ITC can exclude imported products from the United States based on trade secret misappropriation that occurred outside of the United States. The ALJ accordingly found a violation of Section 337.

On review, the Commission did not address the ALJ's findings regarding the ITC's subject matter jurisdiction. Thus, Sino Legend appealed the ITC determination to the Federal Circuit, specifically arguing that the ALJ incorrectly relied on the TianRui decision in light of the more recent Supreme Court Kiobel decision. Sino Legend argued that Kiobel provides that a statute applies extraterritorially only if there is "clear indication of extraterritoriality" and that Section 337 include such a clear indication. As discussed here, the Federal Circuit affirmed the ITC's order with one word: "Affirmed."

Sino Legend's Petition

Sino Legend now brings one question to the Supreme Court: "Whether Section 337(a)(1)(A) permits the ITC to adjudicate claims regarding trade secret misappropriation alleged to have occurred outside the United States." In its petition, Sino Legend argues the following:

  1. The Federal Circuit got it wrong when it held in TianRui that "Section 337(a)(1)(A) permits the ITC to police the misappropriation of trade secrets even where that misappropriation occurs entirely abroad." Sino Legend argues that the majority applied the wrong legal standard when it held that a clear statement of congressional intent is not required when determining extraterritorial application. Sino Legend argues that "Congress must have 'affirmatively and unmistakably instructed' that a statute will apply to foreign conduct." Focusing on Judge Moore's dissent in TianRui, Sino Legend concludes that because nothing in the plain language of the statute indicates that Congress intended an extraterritorial application, the ITC did not have the authority to find a 337(a)(1)(A) violation.
  2. Where Congress has intended for laws to apply extraterritorially, it has said so expressly. Sino Legend gives as an example the Economic Espionage Act, which expressly indicates that it applies extraterritorially. That statute provides that "[t]his chapter also applies to conduct occurring outside the United States if" one of two conditions are met.
  3. Extraterritorial application of Section 337(a)(1)(A) gives ITC too much authority, or "extend[s] the trade secrets laws of the United States worldwide." Sino Legend argues that the "risk of international friction weighs strongly against extraterritorial application of Section 337(a)(1)(A)" because it allows the ITC to replace local laws and institutions worldwide. According to Sino Legend "[t]he Federal Circuit's expansion of the ITC's authority to prosecute the misappropriation of trade secrets is virtually unbounded."
  4. Extraterritorial application of Section 337(a)(1)(A) is a slippery slope in that there "is no reason why a similar theory could not be advanced based on any number of unfair" practices and "[s]uch an extraordinary expansion of U.S. law plainly impedes upon the sovereignty of other nations."

What's Next?

Now, we wait to see if the Supreme Court will grant certiorari over Sino Legend's petition. Based on Sino Legend's arguments outlined above, one important issue that the Supreme Court may choose to consider is one of comity. Right now, comity is discretionary and the ITC is not obligated to agree with foreign judgments. Because there is a Chinese Court decision ruling that Sino Legend did not misappropriate SI's trade secrets (later affirmed on appeal) that is drastically different from the ITC's finding of misappropriation, the Supreme Court may choose to scrutinize the issue of comity more closely than the Federal Circuit did in TianRui. In TianRiu, the Federal Circuit made clear that it did not detect any "conflict between the Commission's actions and Chinese law that would counsel denying relief based on extraterritorial acts of trade secret misappropriation relating to the importation of goods affecting a domestic industry." Here, the Supreme Court may analyze factors that courts should examine when deciding whether to defer to a foreign judgment. In doing so, it may create a framework under which the ITC must consider comity.

Furthermore, since the TianRui decision, the ITC has been a proper forum to investigate claims of extraterritorial misappropriation of trade secrets when the products resulting from that misappropriation are imported into the United States. The ITC forum has been especially great for companies that wished to combat trade secret theft occurring outside of the United States. Among other things, the ITC is fast (about half the time compared to federal court) and can exercise jurisdiction over foreign companies. This is beneficial for American companies that would otherwise have a difficult time initiating a case abroad due to complicated and unknown foreign laws and complicated Hague Convention requirements. In short, the TianRui decision provided an effective and less complicated means for enforcing trade secrets abroad.

If the Supreme Court takes up this case and overturns TianRui, it will again bring forth complicated issues for American companies dealing with the misappropriation of trade secrets abroad.

Twitter: @TS_Watch

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