May 28, 2013
Commercial Times
By E. Robert Yoches
Authored by E. Robert Yoches and Zhenyu Yang
The United States International Trade Commission (ITC), a venue Taiwanese companies frequent, can investigate actions involving trade secrets and exclude the importation of goods that it finds violate some intellectual property of a complainant. In Tianrui Group Co. v. ITC, 661 F.3d 1322, 1337 (Fed. Cir. 2011), a divided Federal Circuit held that the ITC has authority over a business’s overseas conduct that violates “[a] single federal standard” of trade secret law. Id. at 1327. The dissenting judge criticized the majority ruling as tantamount to policing a foreign company’s business conduct beyond the confines of the U.S. borders. Id. at 1338. The opinion may usher in a new era of ITC investigations evaluating businesses conduct overseas. Because the scope of the law is unclear, companies should be careful how they proceed.
Amsted, an American company, and TianRui, a Chinese company, compete in the U.S. market for cast steel railway wheels. Amsted developed a manufacturing process with trade secrets. Instead of practicing in the U.S., Amsted licensed the trade secrets to its Chinese foundries. The ITC found that TianRui hired employees from Amsted’s Chinese foundries, and those employees disclosed Amsted’s trade secrets to TianRui. After finding that TianRui misappropriated Amsted’s trade secrets in China, the ITC issued a limited exclusion order, preventing the importation of certain TianRui products into the U.S. A split panel of the Court of Appeals for the Federal Circuit affirmed.
According to the ITC, "The main issue in this case is whether section 337 authorizes the Commission to apply domestic trade secret law to conduct that occurs in part in a foreign country." Tianrui, 661 F.3d at 1326. The administrative law judge at the ITC analyzed the alleged misappropriation under Illinois trade secret law (Id. at 1325), but the Federal Circuit disagreed (Id. at 1327). It explained:
The question of what law applies in a section 337 proceeding involving trade secrets is a matter of first impression for this court. We hold that a single federal standard, rather than the law of a particular state, should determine what constitutes a misappropriation of trade secrets sufficient to establish an “unfair method of competition” under section 337.
Id. The problem, however, is that there is no single federal standard, as there is no federal trade-secret statute or common law. The Federal Circuit did not identify such a standard. Instead, it found that state trade-secret laws are generally consistent. Id. at 1327-28. The court also cited the Restatement of Unfair Competition and the Uniform Trade Secrets Act as authorities (Id. at 1328), but they are not law. And even though it noted the existence of a federal criminal statute governing theft of trade secrets (Id.), the Federal Circuit did not use as authority in this case. In fact, those sources are not all consistent, but that is a matter for a different case because the court found that the facts in this case showed an unquestioned violation of trade secrets. Id.
The case raises some important issues. Under TianRui, the ITC’s investigative authority involving U.S. trade secrets is virtually borderless because the Federal Circuit found "no statutory basis for limiting the [ITC’s] flexible authority" in trade-secret-misappropriation cases and upheld ITC’s extraterritorial power to investigate disputes involving trade-secret misappropriation. Id. at 1333. The court reasoned that such extended application of U.S. trade secret law is necessary when the "conduct [of a foreign competitor] affects the U.S. market." Id. at 1332.
Underlying TianRui holding is the firm notion that a trade-secret misappropriator cannot be "immune from scrutiny if the act of misappropriation occurred overseas." Id. at 1329. The Federal Circuit analogized the exclusion order under Section 337 to an immigration law that would "bar the admission of an alien who has engaged in particular conduct or who makes false statements in connection with his entry into this country." Id. The court seems to have taken on a guardianship role to maintain a level of fair play in the U.S. market involving American and international competitors.
Another issue is what happens when the violation involves an area about which there is a difference of opinion of trade-secret law. See, e.g., Christopher Rebel J. Pace "The Case For a Federal Trade Secrets Act," Harvard Journal of Law and Technology, Volume 8, Number 2 Spring 1995. When that happens, the Federal Circuit may have to define the law, which is a function that Congress usually has in the United States.
The Federal Circuit denied TianRui’s en banc request in early 2012, indicating the support of the divided decision. With no petition for certiorari, TianRui stands as the law today. TianRui delivered an all-encompassing victory to Amsted, who chose the ITC, instead of state or federal district courts, as the forum to protect its intellectual property. The ITC, now armed with seemingly borderless authority to investigate disputes involving trade secret misappropriation, may become an increasingly favorable forum for owners of U.S. trade secret.
Trade secret is an important component in the intellectual property portfolio of many companies. Under U.S. law:
A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.
Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 474-75 (1974). Advertising campaigns (Id. at 483), a bid on a contract (Ovation Plumbing, Inc. v. Furton, 33 P.3d 1221, 1224-25 (Colo. Ct. App. 2001)), marketing and pricing data (EFCO Corp. v. Symons Corp., 219 F.3d 734, 741 (8th Cir. 2000)), and other information may also be protected by trade-secret law. With such as wide-scope protection and other advantages such as unlimited duration, trade secret protection may ascend as the intellectual property protection of choice in section 337 disputes.
TianRui “sets the conditions under which products may be imported into the United States.” Id. at 1330. One of those conditions is compliance with a single standard of "federal trade secret law," which appears only applicable to section 337 proceedings before the ITC.
This decision has particular importance in Taiwan as Taiwanese companies fight over trade secrets in the ITC. Recently, Richtek Technology and uPI Semiconductor Corporation, two Taiwanese companies, fought in the ITC over patent infringement and trade-secret misappropriation. Certain DC-DC Controllers and Products Containing the Same (Inv. No. 337-TA-698). TianRui is important to Taiwanese companies both as owners of U.S. trade secrets or competitors of such owners. On one hand, a Taiwanese company’s entry to the U.S. market may depend on its compliance with U.S. trade secret laws outside of the U.S. On the other hand, a Taiwanes company owning U.S. trade secrets may resort to ITC’s extraterritorial power as an additional artillery in the global enforcement of such trade secrets. A prudent Taiwanese player in the U.S. market should carefully assess its business and intellectual property strategies in light of TianRui.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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