Category Archives: Unfair Trade Practices

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.

Tennessee Does Not Recognize Unfair Competition as a Separate and Distinct Cause of Action

 Plaintiffs entered into an agreement (“Agreement”)  to pursue the development of a solid waste transfer station for use by Defendants in Davidson County, Tennessee. Plaintiffs were responsible for locating and obtaining an option to purchase a property for the proposed transfer station for assigning the option to Defendants as directed. Plaintiffs were also responsible for obtaining in Defendants’ name all permits necessary to construct the transfer station.After allegedly successful efforts on Plaintiffs’ parts to secure the option and the required permits, Defendants terminated the Agreement. Defendants ended up not purchasing the property even though Plaintiffs secured and assigned the option. Plaintiffs brought claims of breach of contract, unjust enrichment; quantum meruit; violation of the Tennessee Consumer Protection Act (“TCPA”); violation of the Tennessee Trade Practices Act (“TTPA”); unfair competition; and  violation of the Tennessee Uniform Trade Secrets Act (“UTSA”).  In response, Defendants filed a 12(b)6 Motion to Dismiss for Failure to State a Claim. For various reasons, all but the breach of contract claim as to Defendant RST, unjust enrichment, violations of the TCPA, and claims of unfair competition were resolved prior to this decision. Consequently, these were the only claims addressed.Holding: The Motion to Dismiss was denied as the breach of contract claim against one of the defendants. The Motion to Dismiss the unjust enrichment claim was granted as to one defendant and denied as to the other.Plaintiffs could not proceed under the TCPA because they were sellers, not buyers. A plaintiff cannot state a claim under the TCPA unless it  is on the consumer end of the transaction. Plaintiffs cannot allege a claim for “unfair competition” because Tennessee does not recognize unfair competition as a separate and independent cause of action. (Doc. No. 25 at 3–4, citing B & L Corp. v. Thomas & Thorngren, Inc., 917 S.W.2d 674, 681 (Tenn.Ct.App.1995)

Withco, LLC v. Republic Services of Tennessee, LLC, Slip Copy, 2011 WL 1099905 (M.D.Tenn. March 23, 2011).

Lawyers in the Case:

G. Kline Preston, IV, Kline Preston Law Group, PC, Nashville, TN, for Plaintiffs.

Jonathan Jacob Cole, William A. Lewis, Gary C. Shockley, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Nashville, TN, Douglas C. Northup, Fennemore Craig, P.C., Phoenix, AZ, for Defendants.

Using §337 of the 1930 Tariff Act to Prevent the Import of Products Made with Stolen IP

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American companies are getting some assistance from the ITC in preventing foreign companies that disregard U.S. intellectual property rights from importing the offending goods to the United States. US manufacturers have long made use of protections offered through Section 337 of the 1930 Tariff Act.  Put into place during the dire times of the  Great Depression, §337 has survived, while punitive tariff rates and many other protectionist provisions have gone the way of the dodo.  Even though the United States evolved from a home-turf economy to a leader in global trade, §337 has remained in place, quietly protecting American business.    
 Normally used to uphold US patents and trademarks,  §337 prevents a foreign producer from selling into the US in a way that infringes US registered patents or trademarks.  Valid US patents and trademarks create a US monopoly for their owners.  As a result, a foreign manufacturer cannot export to the US a product that infringes a competitor’s patent or trademark rights.  The patent or trademark owner may be able to use §337 to block the offending products at ports of entry.Recently, US companies have had some luck expanding the protections of §337, which is not specifically restricted to registered patents and trademarks. The U.S. Court of Appeals for the Federal Circuit recently ruled that §337 had a broader reach than previously thought.  In a 2-1 decision, the Court affirmed a decision of the US International Trade Commission (ITC) that it could prevent Chinese imports that infringed, “trade secrets” of a US company.  See TianRui Group Company Ltd. v. International Trade Commission, No. 2010-1395 (Fed. Cir. Ct. App. Oct. 11, 2011).Unlike a patent, a trade secret is not evidenced by an official piece of paper.  It is secret information that derives its value from the fact that others don’t know the information and the owner of the trade secret is given a “leg up” over the competition by owning it. There is no way to obtain a registered monopoly over a trade secret (other than patenting the technology, in which case it is no longer secret).  In the TianRui case, the trade secret was a process for making wheels owned by Amsted Industries Inc.  Amsted licensed the process to certain Chinese firms.  TianRui and Amsted discussed but did not agree on a license for use of the technology.  TianRui used the process on the wheels anyway without a license and shipped them to a US buyer.

Section 337 prohibits “unfair methods of competition, and unfair acts in their importation of article . . . into the United States.”  19 U.S.C. §337(a)(1)(A).  Here, the unfair acts occurred in China, not in the United States.  The imported wheels did not infringe a US patent or trademark, and there was no evidence that the wheels were marketed in an unfair manner. Nonetheless, the Federal Circuit upheld the ITC’s right to ban the wheels from coming into the States.  Unless overturned by the Supreme Court, the decision puts a powerful arrow in the quiver of US manufacturers that can show that their trade secrets have been used abroad to create a product imported to the USA.

Is China Going to Take IP Rights Seriously?

China has agreed to create a new high-level agency to be run by Vice Premier Wang Qishan to boost intellectual property rights enforcement, U.S. Trade Representative Ron Kirk said Monday at the end of a two-day summit.

The creation of this agency marks a “significant systemic change” in China’s IP enforcement, which has long been criticized by western businesses and officials for being too lenient (or non-existent, depending on who you talk to) and will make the country’s special IPR campaign from 2010 a permanent part of China’s policies, according to the USTR.

“For the first time, China will establish a permanent leadership structure to enforce intellectual property rights,” U.S. Commerce Secretary John Bryson said Monday. “As enforcement becomes effective, those who infringe will no longer be able to lay low until a crackdown is over and then simply resume their illegal activities.”