On October 11, 2011, the Court of Appeals for the Federal Circuit issued its decision in TianRui Group Co., Ltd. v. ITC, No. 10-1395, affirming the decision of the International Trade Commission in Investigation No. 337-TA-655, which held that extraterritorial conduct my be considered by the ITC as a basis for determining whether to exclude articles from entry into the United States.

The Decision

Under Section 337(a)(1)(A) of the Tariff Act, the ITC may exclude articles from entry into the United States when it has found “[u]nfair methods of competition and unfair acts in the importation of [those] articles.” Although most Section 337 investigations involve assertions of patent infringement, trade secret misappropriation can also be the asserted unfair method of competition.

In the present case, TianRui, a Chinese manufacturer of cast steel railway wheels, was accused of misappropriating trade secrets when it hired several employees away from another Chinese company that had licensed a proprietary method of manufacturing cast steel railway wheels from a U.S. manufacturer. The employees, who were knowledgeable about the manufacturing method and were obligated to keep the method confidential, described the method to TianRui, which used that information to manufacture cast steel railway wheels for sale in the United States.

The U.S. manufacturer initiated a Section 337 investigation, naming TianRui and two of its partners as Respondents. The ITC determined that the process used to manufacture TianRui’s wheels was (1) developed in the United States, (2) protected under domestic trade secret law, and (3) was misappropriated through TianRui’s actions in China. Based on these determinations, the ITC issued a limited exclusion order barring the importation of TianRui wheels manufactured with the misappropriated process.

TianRui appealed, inter alia, the ITC’s ruling that Section 337 authorizes the ITC to apply domestic trade secret law to conduct that occurs in a foreign country. TianRui argued that, although Section 337 generally applies to trade secret misappropriation, TianRui’s trade secret misappropriation did not fall under Section 337 because the alleged acts occurred in China, outside the purview of the ITC.

The Federal Circuit disagreed. According to the court, 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.” Slip op. at 3. “The focus of section 337 is on an inherently international transaction – importation.” Slip op. at 13. “As such, this is surely not a statute in which Congress had only domestic concerns in mind.” Id. (omitting internal quotations).

The Federal Circuit made it clear, however, that not all extraterritorial conduct would fall under Section 337. Rather, “foreign ‘unfair’ activity … is relevant only to the extent that it results in the importation of goods into this country causing domestic injury. In light of the statute’s focus on the act of importation and the resulting domestic injury, the [ITC’s determination] does not purport to regulate purely foreign conduct.” Slip op. at 14.

What This Means for You

Trade secret misappropriation is a serious concern for U.S. companies that license their proprietary manufacturing processes to companies in foreign countries. In many circumstances, it can be very difficult to enforce trade secret rights in foreign countries, and remedies are often inadequate to compensate for the loss of valuable trade secrets. With this decision, the Federal Circuit made it clear that Section 337 gives the ITC the ability to prevent the importation of articles into the United States when those articles are manufactured abroad using a misappropriated trade secret. Thus, if imported articles embody, or are manufactured using, trade secrets that have been misappropriated, the owners of such trade secrets should understand that the ITC could provide them with fast and effective remedies to combat these acts of unfair competition.