On February 26, 2014, the International Trade Commission (the “Commission”) issued the public version of its opinion in Certain Rubber Resins and Processes for Manufacturing Same (Inv. No. 337-TA-849).  Due to the size of the opinion, we have divided it into part 1 and part 2.

By way of background, this Investigation is based on a May 21, 2012 complaint filed on behalf of SI Group, Inc. (“SI”) alleging violation of Section 337 by a number of Respondents in the importation into the United States, sale for importation, or sale after importation of certain rubber resins by reason of misappropriation of trade secrets.  See our May 22, 2012 and June 22, 2012 posts for more details on SI’s complaint and Notice of Investigation, respectively.  On June 17, 2013, ALJ Rogers issued his initial determination (“ID”) finding a violation of Section 337, determining that valid trade secrets were misappropriated and that SI demonstrated a valid domestic industry that was injured as a result of the misappropriation.  See our June 28, 2013 post for more details on the notice of ID issued by ALJ Rogers. 

As explained in our September 12, 2013 post, the Commission determined to review the ID in its entirety.  In its January 15, 2014 notice, the Commission explained that it was determining to affirm in part and reverse in part the ID and terminating the investigation.  See our January 16, 2014 post.  We now provide details of the opinion, although most of the substance of the opinion has been redacted. 

Trade Secret Misappropriation

The Commission provided a brief overview of the law of trade secrets, noting that the elements of misappropriation require (1) the existence of a process that is protectable as a trade secret (i.e., that is of economic value, not generally known or readily ascertainable, and has been kept secret); (2) that the complainant owns the trade secrets; (3) that the complainant disclosed the trade secret to respondent while in a confidential relationship or respondent wrongfully acquired the trade secret; and (4) that the respondent has used the trade secret, causing injury to the complainant. 

The Commission provided a detailed analysis of whether or not the asserted trade secrets could be protectable as trade secrets.  The Commission affirmed the ALJ’s findings of no trade secret where the information was disclosed in the literature, generally known, proven to be readily ascertainable via reverse engineering, or did not provide economic value.   However, numerous aspects of SI’s process were determined to be trade secrets by the ALJ, and most of these findings were affirmed by the Commission.  In particular, the Commission agreed with the ALJ that particular combinations of steps or elements and the overall process were protectable as trade secrets, even if particular steps or elements within the combination were known.  That being said, the Commission reversed the ALJ’s findings as to what constituted a trade secret in several instances. 

The Commission affirmed and adopted all the ALJ’s findings with respect to Respondents’ access to the trade secrets through two high-level employees who signed confidentiality and noncompetition agreements but left to work for Respondents, and thus Respondents wrongfully took SI’s trade secrets by unfair means.  This conclusion was supported by strong evidence of copying in one of the employee’s notebooks that was “exact to the thousandth decimal point.”

In light of the Commission’s modified determination as to what information constituted a trade secret, the Commission analyzed the technical proofs of misappropriation for each alleged trade secret and reversed the findings of misappropriation in situations where the information was no longer determined to be a protectable trade secret.  However, Respondents were determined to have misappropriated numerous individual trade secrets, as well as the trade secret of the overall process.

Domestic Industry

According to the opinion, in order to find a Section 337 violation based on trade secret misappropriation, SI must show actual substantial injury (or threat thereof) to a domestic industry from the misappropriation.  The Commission affirmed the ALJ’s findings as to the existence of a domestic industry based on SI’s resin manufacturing facility and substantial investment in research and development.  The Commission also agreed with the ALJ that Respondents have substantially injured the rubber resin industry in the U.S. based on sales information reflecting Respondents’ penetration into the market.  In addition to actual injury, the Commission also determined that there is substantial threat to injure or destroy SI’s domestic industry.

One particular product, SL-7015, was determined by the ALJ not to result “in any injury or threat to injury to the domestic industry” as the record was devoid of evidence regarding misappropriation of trade secrets related to this product.  Although SI argued that it consistently accused this product, the Commission agreed with the ALJ that SI failed to identify any trade secrets for this product or accuse Respondents of misappropriating any specific process.  As such, the Commission determined there was no Section 337 violation with respect to this product.

Remedy and Bond

The Commission determined that Sino Legend ZJG, SLHG Ltd., Sino Legend Marshall Islands, PMI, Red Avenue Hong Kong, Sino Legend HGL, Shanghai Lunsai, and Red Avenue BVI were in violation of Section 337 and subject to a ten year limited exclusion order.  The Commission explained that issuance of an exclusion order would not affect the public interest, since it would not have a detrimental impact on domestic production of these products.   The Commission also affirmed the ALJ’s recommendation that a bond be entered at 19% of the stated value ($0.22 per pound of imported resin).