Use trade secrets to combat illegal importation of products

The Federal Circuit made new ground when it decided TianRui Group Co. v. ITC. This decision gives U.S. companies the right to stop importation of goods at the border when the goods were made using misappropriated trade secrets of a U.S. company. This is a big win for U.S. trade secret owners since the importation can be blocked regardless of whether the misappropriation took place outside of the U.S. and regardless of whether the trade secret owner is using the misappropriated trade secret inside of the United States.

Basic Background Facts

Amsted Industries Inc. manufacturers cast steel railway wheels using a secret process. They license their trade secret process to Chinese manufacturers who sell these wheels to Amsted to import back into the United States. To manufacture these wheels, Amsted used either of two different trade secret processes, an ABC process and a Griffin process Amsted no longer uses the ABC process in the United States and instead uses the Griffen process. TianRui sought to license the trade secret processes from Amsted, but negotiations failed. TianRui then hired away 9 (nine) Amsted employees in China who were trained in the ABC process and started making wheels using that process. Simply put, TianRui misappropriated Amsted’s ABC process outside of the United States. TianRui did not contest this fact. When TianRui attempted to import the cast steel railway wheels into the United States, Amsted filed a compliant with the International Trade Commission (ITC) alleging violations of section 337 based on TianRui’s misappropriation of trade secrets. A section 337 action attempts to block importation of products into the United Statesbased on unfair trade practices such as trade secret misappropriation.

Extraterritorial Effect of U.S. Trade Secret Law

TianRui’s prime argument was that the misappropriation of the trade secret occurred outside of the United States in that the nine employees were hired away in China and that section 337 was not intended to be applied to acts outside the U.S. The ITC and the Federal Circuit both disagreed with TianRui. The Federal Circuit reviewed the intent of section 337 and held that blocking importation of goods incorporating misappropriated trade secret does not prevent TianRui from making and selling the wheels in China or any other country. It only stops the importation of such wheels into the United States. Hence, there is no extraterritorial effect of U.S.trade secret laws outside of the United States.

Federal Trade Secret Law

The Federal Circuit held that for violations of section 337, the issue is one of federal law and should be decided under a uniform federal standard, rather than by reference to a particular state’s trade secret law which varies from state to state. Accordingly, the Federal Circuit held that the trade secret law which applies for Section 337 violations is the Uniform Trade Secrets Act and the Restatement of Unfair Competition.

Domestic Industry requirement

To be successful under Section 337, it must be shown that the acts of unfair competition threaten to destroy or substantially injure an industry in the United States. TianRui contended that this requirement has not been met since there is no industry for the ABC process in the United States. Amsted no longer utilizes the ABC process in the United States.
After a review of the legislative history and statutory construction of Section 337, the Federal Circuit clarified that the domestic industry requirement did not require that the domestic industry relate to the trade secrets being asserted. The imported TianRui wheels could directly compete with wheels domestically produced by the trade secret owner thus harming Amstead’s domestic wheel industry. In other words, one should not be able to misappropriate a trade secret, utilize the misappropriated trade secret overseas then import product created by the misappropriated trade secret back into the United States to compete with the trade secret owner’s products.
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