The Impact of TianRui on ITC Jurisdiction

Managing Intellectual Property | March.01.2012

Suppose that a Chinese company misappropriates trade secrets from another Chinese company by hiring several of its Chinese employees and then uses those trade secrets to manufacture a product in China. Does the US International Trade Commission (“ITC”) have jurisdiction over this conduct? Surprisingly, the answer may be “yes.” A United States appeals court recently held that the ITC has authority to exclude imported products from the United States market where the manufacturer engaged in unfair competitive practices, such as trade secret misappropriation, entirely outside of the United States. See TianRui Group Co. v. Int’l Trade Comm’n, 661 F.3d 1322 (Fed. Cir. 2011).

As one dissenting judge noted, “the potential breadth of this holding is staggering.” Indeed, this decision opens the ITC to trade secret owners in the United States who believe that their trade secrets have been stolen outside of the United States. The ITC provides a swift and meaningful remedy for enforcement of trade secret rights. The ITC usually renders its decision within a year and a half of the filing of the complaint. The remedy available in the ITC—exclusion of the offending product from the United States—is often adequate to compensate the trade secret holder for the loss of those secrets. Accordingly, the ITC may become more of an attractive forum for US trade secret owners.

The TianRui decision is particularly significant for Chinese businesses. The United States is China’s second-largest trading partner: China exported approximately $365 billion of goods to the United States in 2010, which was a 23.1% increase from 2009.

TianRui is consistent with an increased vigilance in the United States toward extraterritorial trade secret misappropriation, particularly in China. According to the US Intellectual Property Enforcement Coordinator Annual Report, six of the nine “significant” trade secret cases in 2010 (latest data available) were connected to China; this trend will likely further increase because of the large number of scientists and engineers with Chinese backgrounds working in US industries and the increasing number of these workers who are returning to China. Also, the US Congress is considering amending the Economic Espionage Act to provide a civil cause of action for extraterritorial trade secret misappropriation.

It remains to be seen how widely the ITC will apply TianRui. On one hand, TianRui expands the application of 19 U.S.C. § 1337 to trade secret misappropriation because the appeals court held that there is no requirement that the misappropriated trade secret be practiced in the United States to find that the infringing products injure or threaten a domestic US industry. On the other hand, the appeals court noted that its ruling applies only to trade secret investigations, not to patent infringement investigations, which are governed by laws that are explicitly limited to conduct within the United States. This distinction may limit the impact of TianRui as trade secret cases comprise a very small percentage of current ITC investigations. Nonetheless, it behooves Chinese businesses to monitor the application of TianRui in US courts, particularly the ITC, because the decision may encourage the filing of more trade secret actions against foreign defendants where the alleged wrongful conduct takes place entirely outside the United States.
 
By Sten A. Jensen, Jordan L. Coyle and Xiang Wang
 
This article was originally published in Managing Intellectual Property in March 2012.