Dave Bohrer’s recent post Extending US Trade Secret Law to Reach IP Theft in China discusses what to do when your company’s Chinese joint venture makes off with your trade secrets in China. The post suggests it may be possible to bring an action in US court extending either federal or state trade secret law extraterritorially to reach the misconduct in China.
In response to Dave’s post, I suggest that there is another, complementary alternative to a US-based civil action: bring a complaint asserting trade secret theft and unfair competition to the U.S. International Trade Commission (“ITC”) under Section 337 of the Tariff Act.
The ITC, despite its name, is a U.S. federal agency that operates as U.S. district court with a twist – extraterritorial reach to address unfair acts that take place entirely oversees, and in rem jurisdiction over Chinese respondents based on the importation of goods into the United States. The ITC cannot award damages but it can close the borders to goods from Chinese entities that steal trade secrets, effectively a national injunction. Your aggrieved U.S. client at least won’t find itself competing with its own purloined knowhow in the U.S. market. ITC cases are fast (18 months or less, soup to nuts) and furious (offering remedies with teeth that not only exclude unfairly traded goods, but which can bind U.S. distributors and retailers with cease and desist orders).
The ITC came into its own as a forum for litigating trade secrets with the TianRui case in 2008. In that case, employees from a Chinese-U.S. railway equipment joint venture departed and started a new Chinese company, using the stolen trade secrets. Soon the U.S. partner was facing U.S. imports of Chinese railways using the stolen technology. The ITC found, and the Federal Circuit affirmed, that the Commission had authority under Section 337 of the Tariff Act to apply U.S. trade secret law to bad actors and unfair acts that took place entirely in China. The Federal Circuit expressly held that “section 337 applies to imported goods produced through the exploitation of trade secrets in which the act of misappropriation occurs abroad.” In reaching this decision, the Federal Circuit effectively treated the Uniform Trade Secrets Act as federal common law and found the Commission’s determination to comply with basic trade secret principles. ITC findings of fact and law in “unfair acts” cases are preclusive and bind the district court, giving Complainants the option of a rapid one-two punch of an ITC exclusion order sealing the U.S. border from infringing goods, and then the possibility of walking into the district court for damages without relitigating the merits of the case.
Of particular note is the ITC’s determination in TianRui that “[t]he presumption against extraterritoriality does not govern this case.” In other words, a trade secret complaint investigated by the ITC avoids entirely what my colleague described in his earlier post as one of the more significant legal hurdles to extending US trade secret law to reach extraterritorial conduct.
Given the strength and rapidity of the ITC’s remedial authority in trade secret cases, it is not surprising that the agency has become a popular venue for trade secret litigation since TianRui. Starting with TianRui, eleven Section 337 investigations have been instituted since 2008 involving accusations of trade secret misappropriation, most ending in settlement or with significant remedies:
| ITC Inv No. | Articles | Parties | Result |
|---|---|---|---|
| 655 | Railway Wheels | Amsted v. Tianrui | Violation – 10 years exclusion period. Affirmed on appeal to CAFC. |
| 698 | DC-DC Controllers | Richtek v. uPI and others | Settlement/ consent order – 10 year exclusion period. Enforcement action later resulted in $650,000 in penalties, rescinded based on settlement agreement. |
| 791/826 | Electric Fireplaces | Twin-Star v. Reliap | Default – 5 year exclusion period. |
| 849 | Rubber Resins | SI Group v Sino Legend | Violation – 10 year exclusion period. Affirmed per curiam at CAFC. |
| 863 | Paper Shredders | Fellowes v New United | Settlement – 5 year exclusion period |
| 869 | Robotic Toys | Innovation First v. Zuru Toys | Settlement – License Agreement |
| 883 | Opaque Polymers | Rohm & Haas and Dow v. Organik Kimya | Default based on spoliation of evidence – 25 year exclusion period.Affirmed on appeal to CAFC. |
| 887 | Crawler Cranes | Manitowoc v. Sany | Violation – 10 year exclusion period. Affirmed per curiam at CAFC. |
| 933 | Stainless Steel Products | Valbruna v. Viraj | Default based on spoliation of evidence – 16.7 year exclusion period |
| 963 | Activity Tracking Devices | Jawbone v. Fitbit | No violation – failure of proof as to existence and use of trade secrets. Currently on appeal to CAFC. |
| 1002 | Carbon and Alloy Steel Products | US Steel v. Baosteel | TS allegations withdrawn |
With the exception of the 1002 investigation (which alleged computer hacking by the Chinese government), each of these investigations involved accusations that former employees took trade secrets to a new employer. Respondents in these cases have been primarily located in China (655, 791/826, 849, 863, 887, and 1002); but also the U.S., Taiwan, and Hong Kong (698); New Zealand (869), Turkey and the Netherlands (883), India (933), and the U.S. and Singapore (963). Of these eleven investigations, four went to a full ITC hearing, resulting in three findings of violations (all upheld on appeal to the CAFC) and one finding of no-violation (currently on appeal). Three additional cases were decided in favor of the Complainant by default, including two involving findings of spoliation of evidence. The exclusion periods for the accused goods have ranged from 5 to 25 years (generally in accordance with complainant’s requested remedy).
This survey of ITC trade secret actions suggests that an ITC action is a legitimate and compelling alternative to a filing a civil claim in a US state or federal court to protect against the improper acquisition, disclosure or use (i.e. “misappropriation”) of a US company’s IP in an overseas location