U.S. International Trade Commission Affirms 10-Year Exclusion Order Against Chinese Chemicals for Misappropriating Trade Secrets

“This is classic misappropriation of trade secrets, with copying down to the thousandth decimal place.”1

Following up on our recent Article, the International Trade Commission recently upheld former Administrative Law Judge (ALJ) Robert K. Rogers, Jr.’s ten-year product ban against Chinese parties for misappropriating U.S. trade secrets. The full Commission Opinion offers a lodestar to trade-secret litigants suffering from a lack of clear legal guidance in the wake of the 2011 TianRui Grp. Co. v. U.S. Int’l Trade Comm’n case.2

In the opinion, the Commission endorsed TianRui’s “single federal standard” for what constitutes misappropriation of trade secrets at the ITC sufficient to establish a “method of unfair competition defined by the common law.”3 The Commission writes: “Sources of applicable law include the Uniform Trade Secrets Act (“UTSA”) and federal common law.”4

The full Commission often reviews final determinations by ALJs.  Here, they affirmed-in-part ALJ Rogers’ initial decision (ID) in Certain Rubber Resins and Processes for Manufacturing Same and in particular upheld his finding of a violation of Section 337 and a 10-year ban on imports. The complainant in that investigation, SI Group, Inc., is a chemical rubber tackifier manufacturer. SI Group named multiple respondents from China, Hong Kong, Canada, and the United States (collectively, Sino Legend) in its complaint. SI Group accused Sino Legend of hiring away one of its plant managers and misappropriating trade secrets. After agreeing with the ALJ that Sino Legend misappropriated some trade secrets, the Commission issued a limited exclusion order for ten (10) years prohibiting unlicensed imports of rubber resins. Specifically, any rubber resins made using any of the SP-1068 Rubber Resin Trade Secrets that are manufactured by, for, or on behalf of the violating Respondents or any related companies.

While they disagreed with ALJ Rogers that some of the evidentiary burdens had been met regarding certain individual trade secrets (or combinations thereof), the Commission largely upheld the ALJ’s legal framework for analyzing trade secret misappropriation violations, detailed in our analysis from late last year. Of note, the Commission held that “it is our view that the overall combination of elements is protectable since it incorporates several valid trade secrets and has been misappropriated.”5

The Commission applied the four-part UTSA § 1(4) test for misappropriation of trade secrets. It also required the trade secret owner to show “a domestic industry” and, by the statute, “actual substantial injury” or “threat of substantial industry.”6 The Commission upheld in full ALJ Rogers’ holding that, to determine whether the Respondents’ actions represent actual substantial injury to the domestic industry, the ITC examines five indicia established by the ITC in Certain Electric Power Tools, Battery Cartridges and Battery Chargers, Inv. No. 337-TA-284 at 169. Those indicia are:

  1. the respondent’s volume of imports and penetration into the market;
  2. the complainant’s lost sales;
  3. underselling by the respondent;
  4. the complainant’s declining production, profitability, and sales; and
  5. the harm to complainant’s goodwill and reputation.

The Commission went on: “When the complainant alleges actual injury, there must be a causal nexus between the unfair acts of the respondents and the injury.”7

ALJ Rogers also concluded—and the Commission agreed—that Sino Legend’s actions presented a threat to the domestic industry, examining, inter alia, five factors:

  1. substantial foreign manufacturing capacity;
  2. the ability of imported product to undersell the domestic product;
  3. explicit intention to enter into the U.S. market;
  4. the inability of the domestic industry to compete with the foreign products because of vastly lower foreign costs of production and lower prices; and
  5. the significant negative impact this would have on the domestic industry.8

Additionally, the Commission held “[t]he threatened injury must also be ‘substantive and clearly foreseen.'”9 Finding that there was both an actual substantial injury and a threat of a substantial injury for many of the accused trade secrets, the Commission upheld the ALJ’s decision.

Turning to remedy, the ITC only issues broad general exclusion orders when “(A) necessary to prevent circumvention of an exclusion order limited to products of named persons; or (B) there is a pattern of violation of this section and it is difficult to identify the source of infringing products.”10 SI Group argued that the “shifting sands of corporate names and structures” evinced a likelihood of circumvention by the many named respondent companies, and the ALJ found that the “convoluted corporate structures” warranted a general exclusion order.11 The Commission disagreed because tackifier-manufacturers must sell their qualified products to domestic manufacturers to show they meet certain specifications.12

The Commission upheld the effect of the ALJ’s finding with a broad limited exclusion order, however, suggesting that trade secret actions are now an important consideration in any ITC litigation strategy. The Commission found that the complainant offered insufficient evidence on this issue–that “there is a pattern of violation of this section and it is difficult to identify the source of the infringing products”13–though it left open the possibility that stronger evidence of circumvention might have warranted a broader general exclusion order.14 The ITC issued a limited exclusion order over the named companies; extending it to those selling on behalf of those companies.

And as to length, the Commission noted that exclusion orders in trade secret cases are “set as the time it would have taken to independently develop the trade secrets.”15 The parties’ experts varied wildly—with Sino Legend’s expert testifying to a six-month period, and SI Group testifying to a 10–20 year period.  The Commission found the six-month figure incredible: “In fact, respondents were not successful in reverse-engineering most of Complainant’s process and resorted to hiring Complainant’s employees in order to copy Complainant’s processes.”16 The Commission found 10 years “the most reasonable duration,” running from the issuance of the order. The Commission noted in a footnote that Sino Legend “should not be allowed to profit from any delays in the legal process.”17

This decision should serve as a model for any future trade secret owner seeking a remedy from the ITC.  Any future complaint should seek to satisfy the factors affirmed by the ITC for determining whether a threatened or an actual injury occurred to a domestic industry—an element not necessary in statutory intellectual property (patents, trademarks, and copyrights) investigations at the the ITC.  In addition, the ITC clarified that the USTA will govern any misappropriation determination.

 

  1. Rubber Resins and Processes for Manufacturing Same, Inv. No. 337-TA-849, at 46 (USITC Feb. 26, 2014) (Comm’n Opp.) Part 1 Part 2. []
  2. Cast Steel Ry. Wheels, Processes for Mfg. or Relating to Same & Certain Prods. Containing Same, Inv. No. 337-TA-665, USITC Pub. 4265, Limited Exclusion Order, at 1–2 (Feb. 16, 2010), aff’d sub nom; TianRui Grp. Co. v. U.S. Int’l Trade Comm’n, 661 F.3d 1322, 1324 (Fed. Cir. 2011). []
  3. Rubber Resins and Processes for Manufacturing Same, Inv. No. 337-TA-849, Comm’n Opp. at 9-10. []
  4. Id. at 10. []
  5. Id. at 55. []
  6. Id. at 59. []
  7. Id. at 61 (citing Bally/Midway Mfg. Co. v. Int’l Trade Comm’n, 714 F.2d 1117, 1125 (Fed. Cir. 1983) ). []
  8. Id. at 64 (citingCertain Methods for Extruding Plastic Tubing, Inv. No. 337-TA-110, 0082 WL 941574, Comm’n Op. at *9 (Sept. 1982); Certain Digital Multimeters, and Products with Multimeter Functionality, Inv. No. 337-TA-588, 2010 WL 5642165, Comm’n Op. at *33 (Dec. 2010). []
  9. Rubber Resins and Processes for Manufacturing Same, Inv. No. 337-TA-849, Comm’n Opp. at 64. []
  10. 19 U.S.C. § 1337(d)(2)(A) and (B). []
  11. Rubber Resins and Processes for Manufacturing Same, Inv. No. 337-TA-849, Comm’n Opp. at 81 (SI Group relying on Certain Handbags, Luggage, Accessories and Packaging, Inv. No. 337-TA-754, 2012 WL 864789 (Mar. 5, 2012) ). []
  12. Id. at 82. []
  13. 19 U.S.C. § 1337(d)(2)(B). []
  14. Rubber Resins and Processes for Manufacturing Same, Inv. No. 337-TA-849, Comm’n Opp. at 81-82. []
  15. See Certain Cast Steel Wheels, Inv. No. 337-TA-655, Comm’n Op. at 8–9. []
  16. Rubber Resins and Processes for Manufacturing Same, Inv. No. 337-TA-849, Comm’n Op., at 83. []
  17. Id. at 83, n.11. []

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