January 18, 2017

U.S. Supreme Court Denies Certiorari on ITC Ban Based on Trade Secret Misappropriation

A Chinese tire manufacturer, Sino Legend, was found to have misappropriated trade secrets—in China—from another Chinese company. The International Trade Commission, in turn, banned Sino Legend’s tires from the United States for 10 years. On January 9, 2017 the U.S. Supreme Court denied Sino Legend’s Petition for a Writ of Certiorari on whether the U.S. International Trade Commission (ITC) had jurisdiction over the misappropriation of trade secrets that were alleged and found to have been misappropriated and used in China.

The Practical Takeaways.

The ITC’s ban reinforces the importance of trade secrets, especially in light of the recently enacted Defend Trade Secrets Act (DFTA) of 2016, as well as the ITC’s unique and powerful remedies. But before litigation becomes necessary to address trade secret misappropriation, companies can take steps to protect themselves, including:

  1. Identify and document trade secrets preemptively. Reevaluate trade secrets as a protection mechanism in the overall intellectual property strategy, given that trade secrets can cover a range of technologies and information (assuming they are economically valuable) and are not saddled with a limitation in time (e.g., patents).
  2. Reevaluate secrecy measures and policies. Consider whether all necessary steps have been taken to maintain the technology as a trade secret (e.g., limitations on access generally and by territory, along with such access logged, employment agreements, vendor agreements).
  3. Think defensively to prevent intentional or inadvertent trade secret use by new hires. Determine whether any potential hires have connections to a competitor and ensure such prospective employees are properly vetted (e.g., no electronic data and/or physical documents are acquired from another company). Make sure they know that your policies prohibit unlawful use of any other party’s IP, and that no information from their prior employer may be used by them or stored at your company.
  4. Act Quickly to Prevent the Spread of Potentially Misappropriated Trade Secrets. If and when you suspect that an employee may have intentionally or unintentionally brought or used trade secret information belonging to another party, move fast to assess the scope of use and take action to stop it. Document your measures to make it easier to show that use was prevented or arrested. Such actions can help cap liability and reduce the chances that products made after the remedial actions will be enjoined in a court or ITC action.

The Original Case. SI Group filed a complaint with the ITC in May 2012 for trade secret misappropriation against Sino Legend (and others) relating to resins used to manufacture tires. The alleged misappropriation occurred when two former employees (located in China) of SI Group joined Sino Legend (also located in China), where they used trade secret processes belonging to SI Group to develop products in competition with SI Group.

The ITC (a quasi-judicial federal agency) has the power under Section 337 (19 U.S.C. § 1337) to block the importation of products into the United States. ITC cases move fast, and investigations normally conclude within 16 months or less. The ITC’s role under Section 337 is to investigate “[u]nfair methods of competition and unfair acts” connected to imported articles, which can include trade secret misappropriation. On that basis, the Commission instituted an investigation in June 2012.

The Administrative Law Judge issued a final initial determination in June 2013, finding a violation based on the misappropriation of trade secrets. The Commission affirmed-in-part and reversed-in-part in February 2014. Most importantly, the Commission issued a 10-year exclusion order (or a 10-year ban on imported articles that use the trade secrets) against Sino Legend and related companies, banning the importation of certain products into the United States. Sino Legend appealed to the Federal Circuit, which affirmed without opinion, and then petitioned to the United States Supreme Court.