The U.S. International Trade Commission (ITC) gained its notoriety as a litigation forum largely from its patent-infringement docket. Indeed, one study found 85 percent of the investigations at the ITC involve allegations of patent infringement. Colleen V. Chien, "Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission," 50 Wm. & Mary L. Rev. 63, 70 (2008). Yet, its statutory mandate goes beyond patents. Section 1337 of Title 19 (section 337) authorizes the ITC to investigate allegations of infringement of statutory intellectual-property rights—such as patents, copyrights, and trademarks—as well as other "unfair methods of competition and unfair acts in the importation of articles." 19 U.S.C. § 1337(a)(1)(A).
March 28, 2014 Articles
Inside Trade-Secret Investigations at the U.S. International Trade Commission
A look at the requirements and advantages of pursuing a misappropriation claim at the ITC
By P. Andrew Riley
Trade-secret misappropriation falls under this broad category of "unfair methods of competition and unfair acts." For example, the ITC began Investigation No. 337-TA-887, Certain Crawler Cranes and Components Thereof, in July 2013 based on a complaint filed by Manitowoc Cranes of Manitowoc, Wisconsin. 78 Fed. Reg. 42,800 (July 17, 2013). Manitowoc's complaint alleged that Sany Heavy Industry Co. (from Changsha, Hunan Province, China), and Sany America, Inc. (from Peachtree City, Georgia) (collectively Sany), imported crawler cranes into the United States. Sany, the complaint alleged, imported products that infringed two of Manitowoc's patents and that were made with misappropriated Manitowoc trade secrets. Id. Manitowoc alleged that Sany imported products that used trade secrets a former Manitowoc employee passed to Sany. Complaint at 19–23, Certain Crawler Cranes and Components Thereof, Inv. No. 337-TA-887 (filed June 12, 2013). (At the time of publication, a hearing in the investigation before Administrative Law Judge David P. Shaw was scheduled to begin on March 25, 2014, and a final decision from the ITC is due by November 3, 2014.)
Significant differences exist, however, between the requirements to pursue a claim for patent infringement and the requirements to pursue a claim for trade-secret misappropriation at the ITC. Moreover, the remedies available at the ITC differ from those available to trade-secret owners who pursue claims for trade-secret misappropriation in state or federal court. ITC investigations, however, offer many advantages to a trade-secret owner facing competition from products made with its misappropriated trade secrets. This article examines some of the requirements necessary to pursue a claim for trade-secret misappropriation at the ITC, reviews some of the advantages of the ITC, and explores recent remedies issued by the ITC for trade-secret misappropriation.;
Federal Trade-Secret Actions
Significantly, trade-secret owners cannot allege a violation of a federal trade-secret law at the ITC because none exists. Trade-secret misappropriation, a cause of action with a long history sounding in tort, contract, and property, is a creature of common law. Although it has often been proposed, Congress has never successfully codified a private right of action against trade-secret misappropriators. Thus, trade-secret owners traditionally pursued state-law claims for trade-secret misappropriation at the ITC. For example, in Investigation No. 337-TA-655, Certain Cast Steel Railway Wheels, Certain Processes for Manufacturing or Relating to Same and Certain Products Containing Same (Railway Wheels), Amsted Industries Inc. of Chicago filed a complaint alleging unfair acts in the misappropriation of trade secrets under the Illinois Trade Secret Act, 765 Ill. Comp. Stat. 1065/1 et seq. Railway Wheels, Inv. No. 337-TA-655, USITC Pub. 4265, Initial Determination at 17–22 (Oct. 16, 2009) (finding a violation of section 337 based on trade-secret misappropriation) (unreviewed (affirmed) by the commission, 75 Fed. Reg. 8114 (Feb. 23, 2010)).
In 2011, the U.S. Court of Appeals for the Federal Circuit addressed what trade-secret law the ITC should apply. In TianRui v. U.S. International Trade Commission, the Federal Circuit affirmed the ITC's decision in Railway Wheels finding a violation of section 337 based on misappropriation of Amsted's trade secrets. 661 F.3d 1322, 1324 (Fed. Cir. 2011). In that decision, the Federal Circuit addressed—"a matter of first impression"—"what law applies in a section 337 proceeding involving trade secrets." Id. at 1327. The court held "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 Federal Circuit's decision mentioned both the Restatement of Unfair Competition and the Uniform Trade Secrets Act, but fell short of endorsing one over the other. Id. at 1327–28.
National Jurisdiction
Many trade-secret owners risk theft overseas where much of their manufacturing occurs. When trade-secret theft occurs overseas, jurisdictional limitations make it difficult to find a court with jurisdiction over a foreign misappropriator. The ITC, however, has jurisdiction over imported products. Sealed Air Corp. v. U.S. Int'l Trade Comm'n, 645 F.2d 976, 985–86 (C.C.P.A. 1981) ("The subject matter jurisdiction of the ITC over 'the importation of articles into the United States', § 1337(a), and its authority to exclude 'the articles concerned', § 1337(d), are fully adequate [for jurisdiction]."). This in rem jurisdiction allows trade-secret owners to force foreign misappropriators to defend themselves at the ITC or face stiff default penalties. For example, Twin-Star International Inc. filed a complaint in 2011 alleging that a Chinese electronic fireplace manufacturer, and two other respondents, imported products made with Twin-Star's trade secrets. 78 Fed. Reg. 26,653 (May 7, 2013). Twin-Star reached a settlement with one respondent, the California-based importer, in 2012. Id. The remaining respondents, the Chinese manufacturer and a Chinese national who previously worked for Twin-Star, failed to respond and participate in the investigation. Responding to Twin-Star's request, Administrative Law Judge (ALJ) Shaw found these two respondents in default and recommended a 10-year exclusion order. Id. The ITC adopted the ALJ's default conclusion and imposed a 10-year limited exclusion order. Id.
An Injury to a Domestic Industry
For the ITC to find a section 337 violation based on "unfair methods" or "unfair acts," the trade-secret owner must show that the "threat or effect" of the importation or sale after importation of products made with the misappropriated trade secret is "i) to destroy or substantially injure an industry in the United States; ii) to prevent the establishment of such an industry; or iii) to restrain or monopolize trade and commerce in the United States." 19 U.S.C. § 1337(a)(a)(A). Trade-secret owners can prove this "injury" by showing that the misappropriator's actions threaten or actually injure a domestic industry. In a 2013 decision, ALJ Robert K. Rogers outlined ways to determine whether an injury occurred and whether the threat of an injury exists. Certain Rubber Resins and Processes for Manufacturing Same (Rubber Resins), Inv. No. 337-TA-849, Initial Determination on Violation of Section 337 and Recommended Determination on Remedy and Bond at 650–55 (June 17, 2013) (violation affirmed by the commission, 79 Fed. Reg. 3624 (Jan. 22, 2014)).
To determine whether an injury occurred, ALJ Rogers examined five indicia outlined in Certain Electric Power Tools, Battery Cartridges and Battery Chargers (Electric Power Tools), Inv. No. 337-TA-284: (1) "the respondent's volume of imports and penetration into the market"; (2) "the complainant's lost sales"; (3) "underselling by the respondent"; (4) "the complainant's declining production, profitability, and sales"; and (5) "the harm to complainant's goodwill and reputation." Electric Power Tools, Initial Determination at 246 (1991) (unreviewed by the commission).
In Rubber Resins, SI Group of New York alleged that 15 respondents imported products made with misappropriated trade secrets relating to rubber tackifier, which is used in the manufacture of tires. Rubber Resins, Initial Determination at 3. SI Group further alleged that the respondents' actions caused SI Group to lose sales and profits and that it had to lower its prices to compete in the market place. Id. at 624–28. It also argued that the "Respondents have substantial foreign manufacturing capacity, the ability to import product to undersell Complainant's product, an explicit intention to enter into the U.S. market, and lower foreign costs of production and lower prices, all of which will substantially injure Complainant's domestic tackifier industry." Id. at 628–31. In his decision, ALJ Rogers found that the respondents' activities resulted in an actual injury to SI's domestic industry. Id. at 655.
The respondents' actions also threatened SI Group's domestic industry, ALJ Rogers concluded, after examining five factors: (1) "substantial foreign manufacturing capacity"; (2) "ability of imported product to undersell the domestic product"; (3) "explicit intention to enter into the U.S. market"; (4) "the inability of the domestic industry to compete with the foreign products because of vastly lower foreign costs of production and lower prices"; and (5) "the significant negative impact this would have on the domestic industry." Id. at 611.
ITC Remedies for Trade-Secret Misappropriation
The ITC cannot award damages for a violation of section 337, but it can issue general and limited exclusion orders and cease-and-desist orders after finding a violation. 19 U.S.C. § 1337(d) & (f). A limited exclusion order, the most common, typically prohibits the importation of products within the scope of the investigation and made by a named respondent found in violation of section 337. 19 U.S.C. § 1337(d)(2) ("The authority of the Commission to order an exclusion from entry of articles shall be limited to persons determined by the Commission to be violating this section. . . ."). A general exclusion order prohibits anyone from importing products within the scope of the investigation made by anyone. Increasingly rare, general exclusion orders issue when the ITC determines (1) it is necessary to prevent circumvention of a limited exclusion order, and (2) "there is a pattern of violation of this section and it is difficult to identify the source of infringing products." Id. The ITC typically issues cease-and-desist orders to prohibit the sale of products already imported into the United States. This requires proof that the named respondents have an existing inventory of product. See Certain Agricultural Tractors, Lawn Tractors, Riding Lawnmowers, and Components Thereof, Inv. No. 337-TA-486, USITC Pub. 3625, Comm'n Op. at 17 (noting the ITC's long-standing practice of issuing cease-and-desist orders "only to entities with significant domestic operations or inventory").
When the ITC finds a violation of section 337 based on patent infringement, it issues an exclusion order for the remaining life of the patent. Unlike patents, however, trade secrets do not have a statutorily imposed life span. For trade-secret investigations, therefore, the ITC traditionally orders a 10-year limited exclusion order. For example, in Railway Wheels, it issued a limited exclusion order and a cease-and-desist order, both lasting 10 years, after finding that the respondents misappropriated Amsted's trade secrets. 75 Fed. Reg. 8114 (Feb. 23, 2010).
Conclusion
Trade-secret owners burdened with imported products made with misappropriated trade secrets should consider filing a complaint with the ITC. The ITC's nationwide jurisdiction and typically long exclusion orders offer substantial relief for trade-secret owners needing quick action to defend against trade-secret misappropriation.
Keywords: litigation, intellectual property, trade secrets, misappropriation, ITC, patent infringement, imported products, international trade, 337 Action
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