Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337) authorizes the United States International Trade Commission (“ITC”) to exclude articles from entry into the United States when it has found “unfair methods of competition [or] unfair acts in the importation of [those] articles.” Unfair practices include trade secret misappropriation.  When the misappropriation of the trade secrets occurs outside of the United States, there is a question whether U.S. law would apply to give the ITC authority to exclude the articles from entry into the U.S.

As a matter of first impression, the Federal Circuit was asked to decide whether Section 337 applies to imported goods produced through the exploitation of trade secrets, where the misappropriation of trade secrets occurred abroad.  In TianRui Group Co. v. International Trade Commission, 661 F.3d 1322 (Fed. Cir., Oct. 11, 2011), the Court of Appeals for the Federal Circuit held that the ITC could apply U.S. trade secret law to conduct that occurs in a foreign country.  As a result, the ITC could bar such goods from entering the U.S.

In TianRui Group, Amsted Industries, Inc., an American manufacturer of cast steel railway wheels and the trade secret holder, filed a complaint with the ITC  requesting a Section 337 investigation after the TianRui Group, a Chinese manufacturer, imported wheels into the United States that were made in China using Amsted’s protected trade secrets. Amsted licensed its manufacturing process to several companies with facilities in China. After licensing negotiations between Amsted and TianRiu failed, TianRui hired nine employees from one of Amsted’s licensees in China and used these employees to obtain Amsted’s trade secrets and manufactured steel railway wheels using such trade secrets.

Based on overwhelming evidence (TianRui’s manufacturing specification were identical to those described in the trade secrets at issue), the ITC found a Section 337 violation and issued a limited exclusion order lasting a period of 10 years barring the wheels in question from entering the United States.  TianRui appealed the order arguing that because the misappropriation occurred outside the US, Section 337 should not apply.

The Federal Circuit rejected TianRui’s argument on the basis that the statute’s focus is not on the misappropriation per se (which occurred in China), but rather on the goods that are presented for importation to U.S. Customs and Border.  The Federal Circuit further noted that to bar the ITC from considering acts simply because they occurred abroad would substantially limit the statute’s intended purpose of protecting domestic commerce from unfair methods of competition in importation. The Court did note, however, that the ITC does not, and cannot, regulate foreign companies’ conduct outside the United States.  For instance, TianRui is free to sell the wheels in question in China or elsewhere (subject to these countries’ laws).  The ITC’s exclusion order merely bars articles from entry into the U.S.

For further information, please contact:  Nicholas P. Connon, Managing Partner and Chair of the Middle East Practice Group; Tel:  +1.626.638.1757; e-mail: nconnon@connonwood.com