Section 337 Violation May Be Based on Trade Secret Misappropriation Occurring Abroad

By a 2-1 majority, the U.S. Court of Appeals for the Federal Circuit held that the U.S. International Trade Commission (ITC) properly found a violation of § 337 based on a trade secret misappropriation claim where the alleged improper disclosure occurred entirely within a foreign country. TianRui Group Co. Ltd. v. Int’l Trade Comm’n, Case No. 10-1395 (Fed. Cir., Oct. 11, 2011) (Bryson, J.) (Moore, J., dissenting).

In this appeal from an ITC determination that the respondents violated § 337 by virtue of misappropriating certain trade secrets relating to the manufacturing of cast-steel railway wheels (the ABC process), the alleged misappropriation involved a Chinese company poaching several employees from a Chinese competitor. The poached employees were knowledgeable about complainant’s ABC process and were under an obligation not to disclose that secret process. The Federal Circuit first addressed what law should be used to determine whether there has been a § 337 violation in investigations involving an allegation of trade-secret misappropriation and concluded that “the issue is one of federal law, and should be decided under a uniform federal standard,” rather than by reference to the trade-secret laws of one particular state.

The panel majority rejected the argument that § 337 was inapposite under these circumstances because the alleged confidential information was disclosed entirely within China. The majority found that the presumption against the extraterritorial application of U.S. law did not apply to § 337 because the statute is clearly intended to address an inherently international transaction, i.e., importation. The majority also found that the ITC had not applied § 337 to sanction purely extraterritorial conduct because “the foreign ‘unfair’ activity at issue is relevant only to the extent that it results in the importation of goods into this country causing domestic injury.”

The majority also rejected the respondents’ alternative grounds for appeal, i.e., that in trade-secrets cases the domestic industry must practice the misappropriated trade secret in order for the ITC to be authorized to grant relief. The majority held that unlike the domestic industry requirement for § 337 investigations based on statutory intellectual property rights (such as patents, copyrights and registered trademarks), the general provision in the statute relating to “unfair methods of competition and unfair acts in the importation of articles” only requires that the unfair practices threaten to “destroy or substantially injure” a domestic industry, but does not require that the domestic industry relate to the intellectual property involved in the investigation. Accordingly, even though the complainant no longer practiced the ABC process that respondents were found to have misappropriated, the majority concluded that the ITC did not err in defining the domestic industry in this case, because the evidence established that the imported wheels could directly compete with steel wheels domestically produced by the trade-secret owner.

In dissent, Judge Moore maintained that § 337 cannot apply if, as in this case, the alleged trade secret misappropriation took place entirely outside of the United States. Judge Moore contrasted the provision in the statute relating to “unfair acts” with a separate provision in the statute relating infringement of a process patent abroad. Unlike the process patent provision of § 337, the dissent found that the generic provision in the statute upon which a trade-secret misappropriation claim could be based was not a clear indication by Congress to authorize the extraterritorial application of U.S. law.