A company encountering a theft of its trade secrets by a foreign competitor importing goods into the United States may have enhanced recourse at the US International Trade Commission ("ITC"). Under Section 337 of the Tariff Act, 19 U.S.C. § 1337 ("Section 337"), the ITC is authorized to order a stop to the importation of goods into the United States if it determines that their production is the result of unfair trade practices and the importation substantially injures a domestic industry. In the past, trade secret investigations have not constituted a substantial portion of the ITC's docket, but that may change as a result of a recent Federal Circuit decision. In TianRui Group Co. v. International Trade Commission, the Federal Circuit affirmed the ITC's determination exercising jurisdiction over trade secret misappropriation, even in situations where the misappropriation occurs exclusively outside of the United States. 661 F.3d 1322 (Fed. Cir. 2011) (rehearing/rehearing en banc denied, Feb. 1, 2012). The Federal Circuit opinion suggests that the ITC may provide a valuable venue as an alternative to the traditional law suit for companies to address increasing international trade secret theft.
In Certain Cast Steel Railway Wheels, Processes for Manufacturing or Relating to Same and Certain Products Containing Same, Inv. No. 337-TA-655, Complainant Amsted Industries Inc., a domestic corporation, developed and retained a trade secret called the "ABC Process," which was a method of manufacturing steel railway wheels. Amsted had exploited the ABC Process, but then decided to cease using it, and licensed the process to several companies in China. Respondent TianRui, a Chinese competitor, attempted to license the ABC Process but was ultimately unsuccessful. Instead, TianRui hired nine employees from one of Amstead's licensees in China. Despite having been advised of a duty not to disclose and having signed confidentiality agreements, the employees disclosed the ABC Process to TianRui. TianRui then began to manufacture and import steel railway wheels manufactured according to the ABC Process, into the United States. Consequently, Amsted filed a complaint with the ITC against TianRui, alleging a violation of Section 337 based on TianRui's trade secret misappropriation.
The ITC determined that TianRui had misappropriated the trade secret-protected ABC Process from Amsted and blocked importation of the resulting products into the United States. TianRui appealed the ITC's decision to the Federal Circuit, arguing that all of the conduct allegedly constituting trade secret misappropriation occurred in China and that Section 337 does not apply to conduct occurring outside the United States. The Federal Circuit affirmed the ITC's decision to block importation of the misappropriated products, despite the misappropriation having occurred exclusively in China. Thereafter, it denied a petition for rehearing and rehearing en banc.
The Federal Circuit did find that the ITC erred in applying Illinois trade secret law to the Section 337 investigation, instead holding that the ITC should apply federal trade secret law because Section 337 governs international commerce, which is a uniquely federal interest as to which Congress has authorized the courts to develop substantive law. However, the Federal Circuit did not overturn the ITC decision on this ground because reliance on Illinois trade secret law did not affect the outcome.
In finding that Section 337 applies to the exclusion of goods produced through misappropriation occurring in China, the Federal Circuit reasoned that Section 337 by its nature is not limited to domestic activities and is "inherently international." Specifically, the Federal Circuit noted that the ITC's exclusion order affects foreign conduct because it prohibits importation of goods into the United States causing domestic injury. Accordingly, the ITC was not attempting to regulate purely foreign conduct, but rather, was setting conditions under which products may be imported into the United States.
The Federal Circuit also decided an ancillary issue relating to the domestic industry that may further aid those parties seeking to enforce trade secret rights at the ITC. Amsted did not even practice its ABC Process, and consequently, TianRui argued that there could be no Section 337 violation because Amsted did not practice the ABC Process domestically. However, the Federal Circuit held that because trade secret misappropriation falls under the general "unfair acts" 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. Accordingly, 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 injury that industry.
The Federal Circuit's TianRui Group decision, confirming the ITC's jurisdiction over goods made using misappropriated trade secrets, even when the trade secret theft occurred entirely outside the United States, provides at least one possible solution for corporations to pursue effective enforcement against extraterritorial misappropriation of their trade secrets. In US federal district courts, extraterritorial misappropriation may be outside the reach of common law and statutory trade secret laws. In many situations, trade secrets can be easily stolen and sent abroad for low-cost duplication. Furthermore, several foreign countries, predominantly those in Asia, do not recognize or enforce intellectual property rights unless those rights are created by contract. Consequently, a lawsuit for trade secret misappropriation may only be successful against the former employee who stole the secrets in violation of a non-disclosure or confidentiality agreement, but not against the foreign company to which the employee revealed the stolen trade secrets. Thus, the Federal Circuit's TianRui Group decision provides an attractive domestic legal avenue for US companies to combat international trade secret theft.
The ITC has numerous advantages for US companies attempting to protect their trade secrets abroad. Firstly, a complainant at the ITC can obtain jurisdiction over entirely foreign parties and conduct and will be entitled to discovery from foreign entities that might not otherwise be available in federal district court proceedings. Additionally, ITC proceedings are completed in substantially less time than a district court action, which can often take several years, and a complainant bringing a claim for misappropriation of trade secrets at the ITC may receive a resolution and remedies in approximately 12 to 16 months. Moreover, ITC remedies can potentially include a "general exclusion order," which prohibits any manufacturer, not merely the respondent, from importing products which are developed using misappropriated information. Thus, a complainant at the ITC can obtain a remedy excluding not only the misappropriated product, but any product which incorporates the misappropriated product. As a result, the ITC may become the fastest and easiest venue for companies seeking to combat trade secret misappropriation abroad.
Other Trade Secret Misappropriation Investigations Pending at the ITC Include:
Certain DC-DC Controllers and Products Containing the Same, Inv. No. 337-TA-698 (alleging trade secret misappropriation relating to circuit designs, layouts and methods for direct-current- to-direct-current power controllers); and
Certain Electric Fireplaces, Components Thereof, Manuals for Same, Certain Processes for Manufacturing or Relating to Same and Certain Products Containing Same, Inv. No. 337-TA-791 (alleging trade secret misappropriation relating to manufacturing fireplaces).
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