The ITC Flexes Its Trade Secrets Muscles Again

4 minute read | February.09.2016

The Federal Circuit has once again affirmed the ITC’s broad jurisdiction to investigate and, if necessary, remedy extraterritorial misappropriation of trade secretsBased on this and other recent decisions, it looks like the ITC will continue to be a significant forum for trade secret battles.

Background Regarding the ITC’s Investigation

The Commission instituted an investigation captioned Certain Rubber Resins & Processes for Manufacturing Same, on June 26, 2012, based on a complaint filed by SI Group, Inc. The complaint alleged violations of Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337) related to the importation into the U.S. of rubber resins based on misappropriation of trade secrets. SI Group asserted the existence of 17 trade secrets relating to the synthesizing of certain resins that are used to manufacture tires, and that the overall combination of the 17 individual trade secrets is itself a protectable trade secret. SI Group’s complaints named many respondents, including several Sino Legend entities.

The ALJ Found Respondents’ Extraterritoriality Arguments “Ludicrous”

At every stage of adjudication, the Respondents argued that SI Group’s trade secret claims could not give rise to a Section 337 violation because Section 337(a)(1)(A) does not apply to extraterritorial activity. According to Respondents, all of the supposedly unfair practices occurred overseas except for less than $30,000 worth of accused Sino Legend products that were imported into the United States. Specifically, SI Group alleged that Sino Legend misappropriated its trade secrets in China by hiring a former SI Group employee in China and that Sino Legend used the trade secrets in China.

On June 17, 2013, the presiding ALJ issued an Initial Determination, finding a violation of Section 337. See our previous discussion here. The ALJ rejected Respondents’ argument that Section 337(a)(1)(A) does not apply extraterritorially as “ludicrous” in light of the Federal Circuit’s TianRui decision, which he said “addressed this specific issue.”

In TianRui, the Federal Circuit held that the ITC has authority to exclude imported products from the United States where the manufacturer engaged in unfair competitive practices, such as trade secret misappropriation, entirely outside of the United States. The Federal Circuit reasoned that “in this case the Commission has not applied section 337 to sanction purely extraterritorial conduct; the foreign unfair activity at issue in this case is relevant only to the extent that it results in the importation of goods into this country causing domestic injury. In light of the statute's focus on the act of importation and the resulting domestic injury, the Commission’s order does not purport to regulate purely foreign conduct.” The ALJ concluded that the Commission had subject matter jurisdiction, because SI Group alleged facts “nearly identical” to the facts at issue in TianRui.

The Commission Affirmed the ALJ But Did Not Address Extraterritoriality

On review, the Commission affirmed the Initial Determination in part and reversed it in part, finding a violation as to a subset of the respondents. The Commission issued a lengthy opinion, but did not address the ALJ’s conclusion or findings regarding the Commission’s subject matter jurisdiction; this aspect of the ALJ’s Initial Determination thus became a decision of the Commission. The Commission issued a ten-year limited exclusion order prohibiting the unlicensed importation of rubber resins made using certain of complainant’s trade secrets.

Respondents Again Raised Their Extraterritoriality Arguments on Appeal

On appeal to the Federal Circuit, Respondents explicitly sought reconsideration of the court’s TianRui decision. Respondents argued that Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013) conflicts with the court’s TianRui decision, because “Kiobel provides that a statute applies extraterritorially only when it ‘evinces the requisite clear indication of extraterritoriality,” but Congress provided no “‘clear indication’ that Section 337(a)(1)(A) reaches conduct that occurs wholly outside the United States.’”

The Federal Circuit’s Rule 36 one-word affirmance of the ITC’s exclusion order implicitly rejected Respondents’ arguments, including the argument based on the Kiobel decision.

Effect of the Federal Circuit’s Affirmance

The Federal Circuit’s decision, though non-precedential, buttresses the ITC’s jurisdiction to investigate claims of extraterritorial misappropriation of trade secrets, provided products resulting from that misappropriation are imported into the United States. It is the domestic act of importing such products into the United States that gives rise to the ITC’s jurisdiction over otherwise extraterritorial conduct. Section 337 thus provides a powerful weapon for entities with significant industries in the United States to use to protect themselves from and remedy the misappropriation of their trade secrets outside the United States.