ELECTRONIC NEWSLETTER

Abelman, Frayne, &Schwab

In a recent decision, the Federal Circuit held that the U.S. International Trade Commission (AITC@) had authority under the Tariff Act to investigate and grant relief in matters concerning products manufactured outside of the United States using misappropriated trade secrets. TianRui Group Company, et al. v. International Trade Commission, 2011 U.S. App. LEXIS 20607, 2011 WL 4793148 (Fed. Cir. Oct. 11, 2011) (Fed. Cir., October 11, 2011) (ATianRui@). A majority of the Court held that the ITC=s authority over A[u]nfair methods of competition and unfair acts in the importation of articles into the United States@ allowed the ITC to Ainvestigate and grant relief based in part on extraterritorial conduct, insofar as it is necessary to protect domestic industries arising out of unfair competition in the domestic marketplace.@ TianRui is noteworthy because the acts relating to trade secret misappropriation in the case all occurred outside the United States.

Amsted Industries, Inc. (AAmsted@), is a U.S. manufacturer of cast steel wheels for railway cars and had manufactured its wheel products using a secret process referred to as theAABC Process.@ Amsted stopped using the ABC Process in the United States and licensed it to several companies in China.

TianRui Group Company Limited and TianRui Group Foundary Company Limited (ATianRui Companies@), entities located in China which manufacture steel railway wheel, sought to license the ABC Process from Amsted but the parties could not reach an agreement. After the negotiations failed, the TianRui Companies hired nine employees away from one of Amsted=s Chinese licensees, some trained in the ABC Process. TianRui Companies then partnered with another entity and began selling rail wheels in the United States.

Amsted filed a complaint with the ITC alleging that TianRui Companies along with other entities were violating Section 337 of the Tariff Act due to misappropriation of Amsted=s trade secrets, i.e., the ABC Process.

The ITC rejected TianRui Companies= claim that the action could not proceed because the alleged misconduct occurred in China and Section 337 could not apply to extraterritorial activities. The ITC held that the TianRui Companies had misappropriated Amsted=s trade secrets related to the ABC Process. The ITC also held that even though Amsted no longer practiced the ABC process in the United States, importation of the TianRui Companies= wheels nevertheless substantially injured a domestic industry.

TianRui Companies= appealed to the Federal Circuit which affirmed the ITC=s decision. The Federal Circuit reasoned that a Asingle federal standard@ for trade secret misappropriation should apply to proceedings before the ITC, rather than state trade secret law, and that the ITC acted within its authority when it Alook[ed] to conduct occurring in China in the course of [its] trade secrets investigation.@ The Federal Circuit held that U.S. law could be applied extraterritorially in this case because Section 337 specifically applies to the Aimportation of articles@ into the United States, not strictly to domestic activities, and the ITC=s order does notAregulate purely foreign activity@ only foreign conduct Aalleging a domestic injury and seeking a wholly domestic remedy.@

Thus, under TianRui, a company may file an ITC petition claiming trade secret misappropriation by generally demonstrating the existence of a domestic industry for the products at issue and that the unfair practices threaten to Adestroy or substantially injure@ that industry even if the company is not using the trade secret. Moreover, the Federal Cirucuit=s focus in TianRui was the connection between the unfair competition and the imported products, not the location of the trade secret misappropriation.