The ITC May Look to Conduct Occurring Outside the United States When Investigating "Unfair Methods of Competition and Unfair Acts" Related to Importation

Authored by D. Brian Kacedon, Douglas W. Meier, and John C. Paul

The International Trade Commission in recent years has become an increasingly popular forum for litigating intellectual property disputes. The Commission's authority arises from section 337 of the Tariff Act of 1930. Among other areas, section 337 provides the Commission with authority to investigate "unfair methods of competition and unfair acts in the importation of articles . . . into the United States."

In TianRui Goup Co. v. International Trade Commission, No. 10-1395 (Fed. Cir. Sept. 21, 2011),¹ the Federal Circuit addressed the question of whether this statutory authority allows the Commission to look to conduct occurring in China in the course of an investigation of trade secret misappropriation. The Commission, the Federal Circuit concluded, has authority to investigate and grant relief based in part on extraterritorial conduct insofar as it is necessary to protect domestic industries from injuries arising out of unfair competition in the domestic marketplace.

The TianRui Decision

The relevant facts can be summarized as follows: Amsted Industries manufactures cast steel railway wheels in the United States, and TianRui manufactures cast steel railway wheels in China. Amsted licensed one of its two secret processes for manufacturing those wheels to several firms with foundries in China but did not license them to TianRui. After licensing negotiations between Amsted and TianRui failed, TianRui hired nine employees away from one of Amsted's Chinese licensees. According to Amsted, those employees disclosed information and documents to TianRui that revealed the details of Amsted's process, thereby misappropriating Amsted's trade secrets.

Amsted filed a complaint with the Commission based on this misappropriation of trade secrets. In response, TianRui claimed that the Commission did not have the authority to investigate the case because the alleged misappropriation occurred in China and Congress did not intend for section 337 to be applied extraterritorially. The trial judge—and ultimately the Commission as well—disagreed with TianRui, reasoning that section 337 focuses not on the location of the misappropriation but rather on the nexus between the imported articles and the unfair methods of competition.

On appeal, TianRui argued that the disclosure of the trade-secret information occurred in China. According to TianRui, section 337 cannot apply to extraterritorial conduct and therefore does not reach trade-secret misappropriation that occurs outside the United States. Amsted and the Commission, on the other hand, argued that the Commission did not apply section 337 extraterritorially because, as a legal matter, the trade secrets were misappropriated in the United States when railway wheels made by exploiting those trade secrets were imported into the United States.

The Federal Circuit began its analysis by citing the "longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." But this presumption against extraterritoriality does not govern this case for three reasons, according to the Federal Circuit. First, section 337 is expressly directed at unfair methods of competition and unfair acts "in the importation of articles" into the United States. Because of this, section 337 focuses on an inherently international transaction—that is, importation. Thus, it would be natural for Congress to intend for section 337 to apply at least to some activity occurring outside the United States.

Second, the Commission did not apply section 337 to sanction purely extraterritorial conduct. Indeed, the foreign "unfair" activity (i.e., the trade secret misappropriation) is relevant only to the extent that it results in the importation of goods into the United States. In other words, the misappropriation in China was merely a predicate to the charge that TianRui committed unfair acts in importing its wheels into the United States.

Third, the Federal Circuit explained that the legislative history of section 337 supports the Commission's interpretation of the statute as permitting the Commission to consider conduct that occurs abroad. Before the current version of section 337 was enacted, the Commission had advised Congress of its authority, under a similar section, to prevent unfair practices, even when engaged in by individuals residing outside the jurisdiction of the United States. Congress later enacted section 337 but did not disagree with the Commission's characterization of the prohibition on "unfair methods of competition" in the importation of articles into the United States.

For these reasons, the Federal Circuit agreed with the Commission that section 337 authorizes the Commission to investigate conduct occurring outside the United States to protect domestic industries from injuries arising out of unfair competition in the domestic marketplace.

Strategy and Conclusion

1. If companies import articles into the United States, they open themselves to the possibility of being investigated by the Commission. As the Federal Circuit explained, when a company imports into the United States products that were the result of "[u]nfair methods of competition" or "unfair acts," those unfair methods or acts may be investigated by the Commission, even if they occurred outside the United States.
2. A company should consider the Commission as a viable alternative to a federal district court for cases involving trade-secret misappropriation. The Commission provides another avenue for pursuing a remedy for alleged trade-secret misappropriation. The Federal Circuit made clear in TianRui that the Commission has the authority to investigate the misappropriation of trade secrets and that a single 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.

Endnotes

¹ The TianRui decision: http://www.cafc.uscourts.gov/images/stories/opinions-orders/10-1395.pdf.

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