US courts have long abided by the policy that “foreign conduct is generally the domain of foreign law”. However, TianRui Group Co Ltd v US Int’l Trade Comm’n (TianRui) is emerging as an exception to this rule for matters involving trade secret misappropriation. In TianRui, the Federal Circuit affirmed the ITC’s jurisdiction over matters involving trade secret misappropriation, even in cases where the misappropriation occurs entirely overseas.
The Federal Circuit held that Section 337 of the Tariff Act allows the ITC to stop the importation of products produced through trade secret misappropriation occurring wholly outside of the US. Furthermore, while Section 337 requires a domestic injury, it is not necessary that the misappropriated trade secret be practiced in the US in order to satisfy the domestic injury requirement.
There has been a surge in ITC filings that invoke TianRui’s holding, signaling that TianRui could be influential precedent and not an outlier. In the last year, the ITC has initiated investigations into six cases involving exclusively extraterritorial misappropriation of trade secrets in China.*
It is important for entities in competition in the US market to understand TianRui’s potential implications for other forms of extraterritorial enforcement.
Under TianRui, foreign companies employing certain business practices risk having their products being excluded from importation into the US. if their business practices are deemed to constitute unfair competition. These practices could include: utilizing child labor, forced labor, or inhuman working conditions; extraterritorial antitrust or corruption actions that violate the Sherman Act, Clayton Act, or Section 5 of the FTC and harm the US domestic market; and conduct forbidden by the Racketeer Influence and Corrupt Organizations Act (RICO).
How to avoid potential liability
In light of TianRui’s holding, the following practice pointers may substantially reduce the risk of liability:
- Establishing and enforcing a policy against the acquisition of trade secrets from other companies. Hiring procedures should advise prospective employees that trade secret information from prior employers is neither wanted nor accepted. New employees should sign a statement indicating that they are aware of the policy, have no trade secret information, have not shared trade secret information, and were not hired as a condition of sharing trade secret information.
- Consider this policy when entering new cooperative business ventures or partnerships. Here, it may be useful to limit which company employees are permitted access to the confidential information of the proposed business partner, and then quarantine those employees from later participation in developing company technology until after any time restrictions on the use of the business partner’s confidential information has expired.
- Implementing a policy that informs current employees that they will not enhance their position at the company by acquiring trade secret information from colleagues or at a trade show.
- Advising employees of the general outlines of the US Foreign Corrupt Practices Act (FCPA), and similar statutes around the world, at the outset of employment and periodically thereafter.
- Creating and making available an employee manual or handbook that clearly outlines these policies.
- Monitoring compliance of employees to this policy and creating a record of the company’s efforts to monitor employee compliance.
- Prior to committing to a new area of technology or manufacturing process, conducting an internal review of the development of the technology or process to ensure it was developed only through internal efforts or licensing.
- Including a provision in all licenses (inbound or outbound) regarding trade secret and FCPA policies and requiring compliance in licensing partners.
- Keeping updated on all developments in the extraterritorial application of US law, including such issues as mistreatment of workers, child labor, corruption, and antitrust.
By Mark Wine, Orrick Herrington & Sutcliffe LLP
Mr. Wine is a partner in the Orange County office of the international law firm Orrick Herrington & Sutcliffe LLP. Mr. Wine focuses his practice on intellectual property issues generally, including patent litigation and trade secret litigation. Mr. Wine wishes to thank his colleagues Will Melehani, Eric Chang and Johanna Jacob for their invaluable assistance in preparing this article.
*Certain Robotic Toys and Components Thereof, Inv. No. 337-2930 (filed Jan. 2013) (investigation on-going); Certain Shredders, Certain Processes for Manufacturing or Relating to Same, Inv. No. 337-TA-863 (filed Jan. 2013)(Investigation On-going), Rubber Resins and Processes for Manufacturing Same, Inv. No. 337-TA-849 (Jun. 2012)(Pending Investigation), Electric Fireplaces, Components Thereof, Manuals for Same, Inv. Nos. 337-TA-826/791 (2012/2011) (Pending Consolidated Investigation), and DC-DC Controllers and Produces Containing the Same, Inv. No. 337-TA-698 (Jan. 2012) (Enforcement Proceeding).