On October 11, 2011, the Federal Circuit, by a 2-1 majority in TianRui Group Co. v. Int’l Trade Comm’n, No. 2010-1395, affirmed the Commission’s ruling in Inv. No. 337-TA-655, In the Matter of Certain Cast Steel Railway Wheels, Processes for Manufacturing or Relating to Same and Certain Products Containing Same. The Complainant in the investigation was Amsted Industries Incorporated, and the Respondents were Standard Car Truck Company, Barber TianRui Railway Supply LLC, TianRui Group Company Limited, and TianRui Group Foundry Company Limited. The Commission determined that Respondents violated Section 337 by virtue of misappropriating certain trade secrets relating to the manufacturing of cast steel railway wheels (“the ABC process”) and issued a limited exclusion order barring the importation of any unlicensed cast steel railway wheels manufactured by or on behalf of Respondents using those trade secrets.

On appeal, the Federal Circuit first addressed what particular law should be used to determine whether there has been a Section 337 violation in investigations involving an allegation of trade secrets misappropriation. In the context of determining what constitutes a misappropriation of trade secrets sufficient to establish an “unfair method of competition” under Section 337, the panel held that “the issue is one of federal law, and should be decided under a uniform federal standard,” rather than by reference to the trade secrets or tort law of one particular state. While the panel found that the presiding ALJ erred by relying upon Illinois trade secrets law, it nonetheless found that the ALJ’s choice of law was a harmless error because Respondents’ actions would also have constituted misappropriation under the generally understood law of trade secrets, as reflected in the Restatement of Unfair Competition and the Uniform Trade Secrets Act.

The trade secret misappropriation in this case involved allegations of a Chinese company poaching several employees from another Chinese competitor who were knowledgeable about Amsted’s ABC process and who were under an obligation not to disclose that secret process. The panel majority rejected Respondents’ argument that Section 337 was inapposite under these circumstances because Amsted’s alleged confidential information was only disclosed entirely within China. The majority found that the presumption against the extraterritorial application of U.S. law did not apply to Section 337 because the statute is clearly intended to address an inherently international transaction, i.e., importation. The majority also found that the Commission had not applied Section 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 Respondents’ alternative grounds for appeal, which contended that in trade secrets cases, the domestic industry must practice the misappropriated trade secret in order for the Commission to be authorized to grant relief. Unlike the domestic industry requirement for Section 337 investigations based on statutory intellectual property rights (such as patents, copyrights, and registered trademarks), the majority opinion held that the general provision in the statute relating to “unfair methods of competition and unfair acts in the importation of articles” (19 U.S.C. § 1337(a)(1)(A)) 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 misappropriate, the majority concluded that the Commission did not err in defining the domestic industry in this case because the evidence established that the imported wheels could directly compete with the wheels domestically produced by the trade secret owner.

The majority opinion was authored by Judge Bryson and joined by Judge Schall. Judge Moore filed a dissent citing Supreme Court precedent and maintaining that Section 337 cannot apply where as here the alleged trade secret misappropriation took place entirely in China. The dissent noted that “United States trade secret law simply does not extend to acts occurring entirely in China,” and therefore disagreed with the majority’s holding that “[t]he act of importation opens the door to scrutiny of all business practices of the importer associated with the goods including those conducted entirely within China.” The dissent explained that “there is nothing inherently unfair about the importation of the wheels in this case (the appropriate inquiry under § 337) as opposed to their manufacture abroad (which is outside the scope of the plain language of the statute).” The dissent 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 Section 337 (19 U.S.C. § 1337(a)(1)(B)(ii)), 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.