Misappropriation on the Trade Secret Express

TianRui Group Co. Ltd. v. ITC

When it comes to the international theft of domestic trade secrets, it seemed the answer to the mystery lay in where, not whodunit. But, in TianRui Group Co. Ltd. v. ITC, a divided panel of the Federal Circuit made a red herring out of the location of trade secret misappropriation. The panel's majority held that, as long as a trade secret misappropriation threatens to destroy or substantially injure a related U.S. industry, the place where the misconduct occurs doesn't matter- at least for purposes of the ITC exercising its jurisdiction to ban the importation of the tainted good.  Our deduction? In the U.S., the working title for similarly nefarious goods will likely be "And Then There Were None."

The trade secrets at issue in TianRui involved two protected processes for making cast steel railway wheels. Trade secret owner Amsted Industries ("Amsted") holds rights to both processes and is the only domestic source for steel railway wheels. Amsted uses one of the practices domestically and licenses the others to several Chinese manufacturers for sales abroad. Chinese manufacturer TianRui sought a license to Amsted's second process, but the parties could not agree on terms. After negotiations fell apart, TianRui went to one of Amsted's Chinese licensees and hired away nine employees who knew the process. TianRui then began using the process to manufacture its own steel wheels in China with plans to sell them in the U.S.

Amsted filed a complaint with the ITC claiming trade secret misappropriation and requesting that the importation be banned under section 337 of the Tariff Act. Section 337 prohibits unfair methods of competition in the importation of goods into the U.S. when allowing the import would threaten a domestic industry.  The ITC held a 10-day hearing on the merits of Amsted's claims. At the hearing, Amsted proved both that the claimed process was in fact secret and the underlying facts of TianRui's misappropriation. Using Illinois law (the site of trade secret ownership), the administrative law judge concluded section 337 applied even though the misappropriation occurred entirely abroad and Amsted no longer uses the protected practice domestically. The judge held that as long the misappropriation causes a domestic injury, the actual place of the conduct doesn't matter. 

On appeal, a divided Federal Circuit agreed with the Commission's decision-but only after addressing the appropriate standard for determining misappropriation under section 337.  Resolving the issue as a question of first impression, the panel found that a single federal standard based on the Uniform Trade Secret Act should govern misappropriation questions for imported goods.  The majority then concluded that section 337 does apply to restrict the importation of goods produced through the wrongful use of trade secrets even if the acts of misappropriation occur entirely abroad. The majority rejected the claim that doing so violated the general presumption against extraterritorial application of domestic law. The majority cited both Congressional intent to protect domestic commerce as well as the fact that, under their analysis, only domestic effects of foreign conduct are regulated, not the conduct itself.  The dissent took specific exception to the majority's finding on this point.

In addition, the majority also rejected TianRui's argument that section 337 should not apply because Amsted no longer uses the practice in question within the U.S. The majority said the ITC has broad authority to define the industry threatened by the wrongful conduct and that ITC precedent allows for a flexible "realities of the marketplace" standard for defining that industry's scope in order to protect competition.

TianRui will certainly broaden the list of usual suspects for future ITC proceedings. First, unlike a patent case in the ITC, TianRui decides that an ITC complainant need not be using its trade secrets to protect them.  Going forward, that means a complainant only has to show that the misappropriation threatens to destroy a U.S. industry, even if they are using another technology. Second, by focusing on the rights given under section 337 to control imports, the decision will allow protection of U.S. industry even if the bad conduct occurs someplace else-and if even if the alleged bad conduct is entirely legal and permissible under the law of the country where it occurs. Some may see this broadened protection as a plot twist. But, given a recent report by the Office of the Counter Intelligence Executive that concludes that trade secret theft of U.S. technology by Chinese and Russian actors is significant and will grow, the court's decision in TianRui may be just what's needed to keep at least some U.S. trade secrets from becoming international spy thrillers.

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