Chinese Company that Allegedly Stole Trade Secrets Seeks Rehearing of Decision that Allows ITC to Ban the Importation of Its Goods

Last week, I discussed the fact that the Federal Circuit had affirmed an International Trade Commission (ITC) ruling which expanded Section 337 of the Tariff Act of 1930 to permit a US company to enjoin the importation of goods made in China by a Chinese company using trade secrets stolen from the US company.  Not surprisingly, the Chinese manufacturer, TianRui Group Co. Ltd. and its affiliates, and probably many others, were not happy with this decision. TianRui and group filed a petition for a rehearing of the case en banc, arguing that the Federal Circuit’s ruling improperly broadened the authority of U.S. trade laws.

In the decision at issue, a three-judge panel ruled this past October that the ITC did not err in finding that the Chinese wheel maker violated Section 337 of the Tariff Act by importing cast-steel railway wheels produced in China using Chicago-based Amsted Industries Inc.’s trade secrets. The appeals court held that the Tariff Act, which applies to “unfair acts in the importation of articles … into the U.S.,” allowed the ITC to ban the importation of products even where the infringing or illegal conduct occurred in a foreign country, outside the boundaries of the United States.

TianRui seeks a rehearing of this decision, arguing that the appeals court dramatically expanded the authority of the ITC, because, without express Congressional authority, the ITC can’t reach as far as the decision allows. The petition alleges “[t]he majority here, by stepping in where Congress chose not to tread, has unlawfully broadened the scope of Section 337.”

The suit originated when Amsted filed its complaint against TianRui and its affiliates in August of 2008, claiming they stole trade secrets and used them to make the wheels at issue. TianRui had tried to get a license earlier from Amsted for use of the secret information, but Amsted refused because it had already had two other Chinese licensees for the trade secrets.  Administrative Law Judge Carl C. Charneski found in October of 2009 that TianRui had impermissibly taken Amsted’s trade secrets after they were shared with it by former employees of Amsted’s predecessors who had gone to work for TianRui. The ALJ recommended that the ITC issue exclusion and cease-and-desist orders stopping the goods from coming into the country. TianRui filed a petition for review in November of 2009, but the ITC refused to review the ALJ’s initial determination in December of 2009.

As a result, in February of 2010, the ITC issued a 10-year ban on the importation and sale of TianRui’s railway wheels made using Amsted trade secrets. TianRui appealed this ruling in June of 2010, asserting that the ITC did not have the authority to apply federal trade secret laws to conduct that occurred in China without express statutory authority from Congress. On Oct. 11th, 2011, the Federal Circuit issued a decision finding that the ITC had correctly applied Section 337 in this case. Although TianRui claimed the trade secrets theft took place exclusively in a foreign country, the company imported the railway wheels produced using the stolen information, which allowed the ITC to address the conduct under a §337 investigation, the appeals court said. In the petition for rehearing, TianRui argues that the Federal Circuit’s decision unlawfully allows the ITC to apply U.S. trade law to any unfair act that takes place outside the borders of the United States.

I think that the ITC and the Federal Circuit got it right. While the ITC can’t lawfully punish conduct that occurs in China and stays in China, if the offending manufacturer wants to bring those goods into this country, the ITC does and should have the authority to regulate that and has done so here. Congress should, however, clear up any ambiguities in the statute and make it clear that foreign manufacturers who steal the IP of US companies cannot lawfully bring those goods to market in the United States.

The case is TianRui Group Co. v. ITC, case number 2010-1395, in the U.S. Court of Appeals for the Federal Circuit.

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