Thursday, October 20, 2011

Interesting 337 Case

I have a couple interesting cases to cover. The first is Tianrui Group v. International Trade Commission, which is a Section 337 exclusion case. We don't usually cover 337 cases here, so some background is appropriate.

The law permits a U.S. holder of intellectual property rights to bring an action in the International Trade Commission seeking to exclude from the United States imported products that infringe the intellectual property. Usually, but not always, the IP rights involved are from patents, but 337 applies to copyrights, trademarks, and other rights. To be technically correct, 337 also applies to other methods of unfair competition including some antitrust violations. If the ITC finds a violation, it can issue an exclusion order, which tells Customs and Border Protection of prohibit the entry of infringing merchandise. Appeals from the ITC are heard by the Court of Appeals for the Federal Circuit, bypassing district court review

There is a lot in this case. If you are interested in it, read the whole opinion. This summary will only hit the highlights and will miss the detail.

The underlying issue in this case is interesting for two reasons. First, it relates to trade secrets. Second, it relates to activity occurring entirely in China. The facts are that Amsted, a U.S. manufacturer of cast steel railway wheels licensed a secret process to foundries in China. When TianRui tried to license the process, it was unable to strike a deal with Amsted. Instead, it hired nine employees from a licensed Chinese producer, some of whom knew the secret process. TianRui then began producing wheels using the process and exporting them to the United States. Amsted sought to exclude that merchandise via a 337 action.

In the ITC, TianRui raised the argument that because the alleged violation occurred entirely in China, there was no basis on which to bring a 337 case in the U.S. Rather, according to TianRui, the Chinese courts provide a more appropriate forum.

Trade secret misappropriation law is an entirely different animal than patent, copyright, and trademark law, all of which are implemented in federal statutes. Trade secrets, on the other hand, are based on state laws. The administrative law judge at the ITC applied trade secret law as found in Illinois, where Amsted and other parties have offices. As an issue of state trade secrets law, this raises the question of whether behavior that takes place entirely in China is subject to state trade secret law.

As an initial point, the Federal Circuit held that state trade secret law does not control the issue. Rather, the Court held that a single federal standard should determine what constitutes misappropriation of a trade secret in the context of Section 337. The reason for this is that Section 337 embodies Congressional policy to protect American intellectual property rights. That is not an issue of state law.

On the main point, TianRui argued that Section 337 does not make trade secret law have extraterritorial reach to cover activities that took place entirely in China. As a general principal, American law does not have extraterritorial application unless Congress specifically states that it does. The Court found that the presumption against extraterritorial application does not apply here for three reasons. First, the law explicitly addresses imports to the U.S., which inherently regulates products produced through foreign activity. Second, the law addresses unfair competition in the U.S. that results from the importation of the merchandise. Finally, the legislative history indicates Congressional intent to regulate foreign behavior. Thus, the Federal Circuit held that 337 has extraterritorial reach.

The case has a strong dissenting opinion arguing that Section 337 cannot regulate activity occurring entirely outside the United States. According to that opinion (by Circuit Judge Moore), the United States has "no right to police Chinese business practices." The dissent goes on to say that there are all manner of potentially unfair business practices occurring outside the United States including suppressed wages and forced labor. The dissent calls the breadth of the majority opinion "staggering."

The dissent notes that is is sympathetic to Amsted and that TianRui appears to be a bad actor. Nevertheless, the judge finds nothing in the statute or the legislative history to show a congressional intent to apply trade secret law extraterritoriality. That is distinct from patent law, which is specifically included in the statute. Lastly, the judge noted that Amsted had an opportunity to bring this conduct within the extraterritorial scope of 337 by getting a process patent to cover the trade secret. Of course, my IP lawyer friends will point out, that limits the lifetime of protection. If the folks at Coke had to do that to preserve their secret formula, it would only be a secret for 20 years.

1 comment:

Anonymous said...

what is the other interesting case?