March 30, 2015 Articles

Trade Secret Litigation in the USITC

Are there benefits for litigating in the U.S. International Trade Commission?

By Bryan Schwartz and Nicole Lai

Trade secret cases are on the rise in U.S. courts. See David S. Almeling et al., "A Statistical Analysis of Trade Secret Litigation in State Courts," 46 Gonz. L. Rev. 57, 66–68 (2011). And, the Supreme Court decisions reducing the scope of patentable subject matter and the advent of new technologies (such as 3D printing) available to copyists seem likely to accelerate the use of trade secret law to protect valuable intellectual property.

Perhaps less well known is that trade secret cases brought in the U.S. International Trade Commission (USITC or Commission) under section 337 of the Tariff Act are also on the rise. See Katherine Rhoades & Jennifer Turchyn, "Poaching the American Dream: The U.S. International Trade Commission's Instrumental Role in Combating Foreign Theft of American Trade Secrets," 38 337 Reporter, Summer 2014. One likely explanation is a 2011 Federal Circuit decision holding that section 337 could be used to remedy trade secret misappropriation, even if that misappropriation occurred entirely abroad. TianRui Grp. Co. v. USITC, 661 F.3d 1322 (Fed. Cir. 2011). This article goes beyond TianRui to highlight other possible reasons for the increased use of section 337 to protect trade secrets.

Trade Secret Rights at the USITC

Section 337 is a trade statute that protects against unfair imports, but one that specifically enumerates statutory intellectual property (patents, copyrights, and trademarks) as subject to its provisions. 19 U.S.C. § 1337(a)(2). However, section 337's general rubric is broader: it authorizes the USITC to exclude articles from entry into the United States when it has found any "[u]nfair methods of competition [or] unfair acts in the importation of [those] articles." 19 U.S.C. § 1337(a)(1)(A). The USITC has "long interpreted section 337 to apply to trade secret misappropriation." TianRui, 661 F.3d at 1326.

Elements of trade secret misappropriation require that: (1) a protectable trade secret exists (and the trade secret has an economic value and is not publicly known or easily ascertainable, and the complainant has taken reasonable precautions to maintain its secrecy); (2) the complainant owns the trade secret; (3) the respondent obtained the trade secret by unfair means; and (4) "the respondent has used or disclosed the trade secret, causing injury to the complainant" in the United States. Certain Rubber Resins & Processes for Mfg. Same, Inv. No. 337-TA-849, Comm'n Op. at 10 (USITC Feb. 26, 2014).

Whether trade secret misappropriation has taken place under section 337 is governed by the federal law of trade secrets. TianRui, 661 F.3d at 1327. However, invoking section 337 to enforce trade secrets has additional requirements. First, there must be imported articles. These need not be articles made abroad: articles made in the United States but subsequently imported are also covered. Certain Sputtered Carbon Coated Computer Disks, Inv. No. 337-TA-350, USITC Pub. 2701, Comm'n Op. at 9 (Nov. 1, 1993). Further, these articles need not even have a physical structure, as the USITC has found that section 337 covers electronic transmissions, Certain Hardware Logic Emulation Systems & Components Thereof, Inv. No. 337-TA-383, USITC Pub. 3089, Comm'n Op. at 20 (Mar. 31, 1998), although that issue is currently on appeal to the Federal Circuit. Certain Digital Models, Digital Data & Treatments Plans for Use in Making Incremental Dental Positioning Adjustment Appliances, the Appliances Made Therefrom & Methods of Making the Same, Inv. No. 337-TA-833, Comm'n Op. (USITC Apr. 9, 2014), rev'd sub nom., ClearCorrect Operating, LLC v. USITC, No. 14-1527 (Fed. Cir. June 3, 2014).

Second, there must be substantial injury or threat of substantial injury to a domestic industry from the trade secret misappropriation. While the statute does not specify the criteria for establishing a domestic industry in a nonstatutory intellectual property case (such as trade secrets), USITC case law suggests that the industry need not be limited to manufacturing, but may include other investments in plant, equipment, labor, or capital. See Certain Crawler Cranes & Components Thereof, Inv. No. 337-TA-887, Final Initial Determination at 3 (USITC July 11, 2014). Moreover, the domestic industry need not be using the misappropriated trade secret; it suffices if the imported product resulting from the misappropriated trade secret competes with an existing product in the United States and substantially injures or threatens substantial injury to the industry surrounding that product. TianRui, 661 F.3dat 1335–37 (finding a domestic industry in the cast steel railway wheels that used a different, secret process than the one that had been misappropriated). To determine injury, the USITC examines a number of factors, including the imported product's market penetration, the complainant's lost sales, underselling, and harm to goodwill or reputation. See Certain Rubber Resins & Processes for Mfg. Same, Inv. No. 337-TA-849, Comm'n Op. at 60 (USITC Feb. 26, 2014). The USITC's threat analysis mirrors many of these factors, including, e.g.,the capacity of the accused manufacturer and its ability to undersell the domestic industry.

Why Choose the USITC to Enforce Trade Secrets?

The elements of a section 337 violation are: (1) an unfair act (such as trade secret misappropriation) or unfair method of competition; (2) an importation or sale involving an importation of an accused article into the United States; (3) a domestic industry (typically defined as the complainant's business or product); and (4) injury to the complainant as a result of the unfair act.

Although the complainant must show the existence of imported articles and the presence of a domestic industry, these additional requirements do not pose large hurdles, as noted above. Moreover, they are offset by several decided advantages of section 337.

First, the USITC's jurisdiction is in rem, i.e., over the goods themselves. Thus, there is no need to establish personal jurisdiction over those individuals or companies identified as having misappropriated the trade secrets. This presents obvious advantages when the offending parties are foreign companies with few contacts that would support personal jurisdiction.

Second, section 337 proceedings are speedy in comparison to the courts. The statute requires that investigations be concluded as early as "practicable," 19 U.S.C. § 1337(b), and in practice most investigations conclude within 14–16 months. Such expedited proceedings will ultimately save the client money, both in litigation costs and by decreasing the extent of the damage caused by the trade secret misappropriation. And, despite that the USITC requires more detailed pleadings than the courts, which can be initially burdensome, this requirement ultimately streamlines the litigation process and can result in a more cost-effective case.

Third, remedies under section 337 have distinct advantages over those available in court. Although damages are not available, USITC exclusion orders are enforced by United States Customs and Border Protection, meaning that the complainant does not have to personally police potential violations as it would a court-ordered injunction. Further, USITC exclusion orders nearly always issue if a violation is found. Among other reasons, USITC exclusion orders are not subject to the same requirements for injunctions dictated by the Supreme Court in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). See Spansion, Inc. v. USITC, 629 F.3d 1331, 1359 (Fed. Cir. 2010). Whereas eBay dispensed with near-automatic injunctions, section 337 provides that if a violation is found, the USITC shall exclude the importation of the used product unless it harms the public welfare or U.S. consumers or hinders competitive conditions. 19 U.S.C. § 1337(d)(1). In practice, these public interest factors have rarely been invoked by the USITC as grounds for denying an exclusion order. This difference may have real consequences in the trade secret domain, where the eBay case arguably has had a negative impact on the ability to secure injunctive relief. See, e.g., Faiveley Transp. Malmo AB v. Wabtec Corp., 559 F.3d 110, 117 (2d Cir. 2009) (finding misappropriation of trade secrets but ruling that the plaintiff failed to demonstrate irreparable harm absent an injunction).

Finally, the USITC has other remedies besides excluding the goods from entering the United States. It can issue cease and desist orders under 19 U.S.C. § 1337(f)(1), which may prohibit a wide range of activities in the United States, but most typically are used for barring ongoing sales from existing U.S. inventory. The USITC can also issue consent orders, which, like their court counterparts, are stipulations to jurisdiction and agreements to refrain from the activities alleged to violate the statute. Violations of both consent orders and cease and desist orders can result in severe penalties. Violations of cease and desist orders are subject to the greater of $100,000 per day or twice the domestic value of the imported items. 19 U.S.C. § 1337(f)(2). In one case, penalties of over $13 million were assessed for cease and desist order violations. See Fuji Photo Film Co. v. USITC, 474 F.3d 1281, 1289, 1298 (Fed. Cir. 2007) (remanded for the limited purpose of considering adjustments to the civil penalties in light of the court's decision that one component is permissibly repaired). The Commission's authority to impose civil penalties for violation of its remedial orders has been affirmed by the Federal Circuit. Ninestar Tech. Co. v. USITC, 667 F.3d 1373, 1384 (Fed. Cir. 2012).

On the Horizon

At this writing, there are several cases pending before the USITC involving the misappropriation of trade secrets. Certain Stainless Steel Prods., Certain Processes for Mfg. or Relating to Same & Certain Prods. Containing Same, Inv. No. 337-TA-933 (USITC filed Sept. 5, 2014) (investigation ongoing); Certain Crawler Cranes & Components Thereof, Inv. No. 337-TA-887 (USITC filed June 12, 2013) (pending USITC review); Certain Opaque Polymers, Inv. No. 337-TA-883 (USITC filed May 20, 2013) (pending USITC review). While these cases seem to follow the TianRui fact pattern involving acts of trade secret misappropriation occurring abroad, followed by importation into the United States, the other factors noted above may have also played a role in the decision to file them in the USITC. The Crawler Cranes case is under review by the Commission and may result in some impact on USITC trade secret law, although none of the trade secret issues on review seem particularly fundamental.

Another potential development to be watched is the Federal Circuit's en banc review of Suprema, Inc. v. USITC, 742 F.3d 1350 (Fed. Cir. 2013). The oral argument in that case occurred on February 5, 2015. In Suprema, the Federal Circuit held that there was no jurisdiction under section 337 where induced infringement occurred outside the United States but the act of direct infringement did not occur until after the article was imported into the United States. Because some of the same arguments made by the Suprema majority against extending USITC jurisdiction to extraterritorial acts were made in the dissenting opinion in the panel decision in TianRui, it is possible that the en banc ruling in Suprema will impact the holding in TianRui. However, based on the briefs filed in that case, such an impact seems unlikely.

Conclusion
The USITC can be an effective venue for conducting trade secret litigation as it offers a remedy for extraterritorial acts of trade secret misappropriation (under TianRui), with a speedy docket, and exclusion orders that do not have to be policed by the complainant.

Keywords: litigation, intellectual property, USITC, international trade, trade secrets, misappropriation, exclusion orders


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