Trade secret theft outside U.S. is basis for barring imports, Federal Circuit rules

In a split ruling, the U.S. Court of Appeals for the Federal Circuit has upheld an International Trade Commission order that barred a company in China from importing railway wheels into the United States because the company misappropriated trade secrets in China from a U.S. company.

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In a split ruling, the U.S. Court of Appeals for the Federal Circuit has upheld an International Trade Commission order that barred a company in China from importing railway wheels into the United States because the company misappropriated trade secrets in China from a U.S. company. On Oct. 11, two judges on the Federal Circuit panel, ruling in TianRui Group Co. Ltd. v. International Trade Commission, affirmed the ITC’s order that the wheel imports violated the Tariff Act of 1930, even though the trade secret theft happened outside the United States. The dissenting judge characterized the potential impact of the ruling as “staggering” because it could extend to many products made overseas. Section 337 of the act authorizes the ITC to exclude imports when it finds “[u]nfair methods of competition [or] unfair acts in the importation of [those] articles.” Judge William Bryson authored the majority ruling, joined by Senior Judge Anthony Schall. Judge Kimberly Moore dissented. Bryson wrote that the ITC “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 majority determined that the ITC has authority to find that the imported wheels would injure a domestic industry even though no domestic manufacturer is using the process protected by U.S. trade secret law to make railway wheels. TianRui Group Co. Ltd. and TianRui Group Foundry Co. Ltd. sought to license wheel manufacturing technology from Amsted Industries Inc. in 2005. After talks broke down, TianRui hired nine employees from Amsted’s Chinese licensee, Datong ABC Castings Co. Ltd. Eight of the nine employees signed confidentiality agreements before leaving Datong, and all were advised of their duty not to disclose confidential information. TianRui later partnered with Park Ridge, Ill.-based Standard Car Truck Co Inc. to form a joint venture, Barber TianRui Railway Supply LLC to import the wheels into the United States. Amsted’s complaint at the ITC alleged that TianRui, its partner and their joint venture misappropriated trade secrets. The question of what law applies in a Section 337 proceeding involving trade secrets was a matter of first impression for the Federal Circuit, and Bryson wrote that “a single federal standard, rather than the law of a particular state” should apply. Bryson then wrote that Section 337′s focus is on the inherently international transaction of importation and therefore “analogous to immigration statutes that 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.” He also found that the ITC did not apply Section 337 to sanction purely extraterritorial conduct. “The foreign ‘unfair’ activity at issue in this case is relevant only to the extent that it results in the importation of goods into this country causing domestic injury,” Bryson wrote. “In light of the statute’s focus on the act of importation and the resulting domestic injury, the Commission’s order does not purport to regulate purely foreign conduct.” Bryson concluded that Section 337 “sets the conditions under which products may be imported into the United States.” He observed that in cases involving imported goods made with technology gained from misappropriated trade secrets, the misappropriation will often occur overseas, where the products are manufactured. “To bar the Commission from considering such acts because they occur outside the United States would thus be inconsistent with the congressional purpose of protecting domestic commerce from unfair methods of competition in importation such as trade secret misappropriation,” Bryson wrote. In her dissent, Moore wrote, “there is no basis for the extraterritorial application of our laws to punish TianRui’s bad acts in China.” She said that she believes the issue in the case is “whether § 337 authorizes the Commission to apply domestic trade secret laws to conduct which entirely occurs in a foreign country.” “United States trade secret law simply does not extend to acts occurring entirely in China,” Moore wrote. “We have no right to police Chinese business practices.” Moore observed that “the potential breadth of this holding is staggering” because many products made overseas could be viewed as produced using unfair business practices. “Absent clear intent by Congress to apply the law in an extraterritorial manner, I simply do not believe that we have the right to determine what business practices, conducted entirely abroad, are unfair,” Moore wrote. Greg Vogler, a partner at Chicago’s McAndrews, Held & Malloy who represented Amsted, which was an intervenor in the Federal Circuit case, said the ruling will help companies that have held back on licensing technology to foreign partners or opening facilities abroad because they’re afraid their proprietary technology will be stolen. “This case, for the first time, gives them an insurance policy of some sort against that type of conduct Volger also said the “dissent appears to be too narrow of a focus on the [letter of the] law” and not enough of a focus on what Congress was trying to accomplish with it. The International Trade Commission has a long-standing policy of not commenting on matters in litigation, said spokeswoman Peg O’Laughlin. Tom Schaumberg, a partner at Adduci, Mastriani & Schaumberg in Washington who argued for appellants TianRui, Standard Car and Barber, declined to comment. McDermott Will & Emery and Ruixue Ran, a partner at Jun He Law Offices in Beijing, also represented the appellants. McDermott Will did not respond to requests for comment. Ran could not be immediately reached for comment. Standard Car also did not respond. Sheri Qualters can be contacted at [email protected].

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