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ITC's Extraterritorial Authority: TianRui 'Opens the Door to Scrutiny of All Business Practices' Outside the United States

Friday, May 17, 2013
By Zhenyu Yang and E. Robert Yoches, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Abstract

American businesses have a new weapon to exclude foreign competitors from the U.S. market using the International Trade Commission (ITC). In TianRui Group Co. v. ITC,1 a divided Federal Circuit panel gave the ITC authority over a business's oversees conduct that violates federal trade secret law, which has no statutory or common-law basis. A “single federal standard” governs trade secret misappropriation analysis in Section 337 cases.2 Judge Kimberly A. Moore dissented, criticizing the majority opinion as tantamount to policing a foreign company's business conduct beyond the confines of the U.S. borders.3 This article analyzes TianRui in light of other landmark cases involving extraterritorial application of U.S. intellectual property law.

Background

Amsted Industries Inc., an American manufacturer, developed a manufacturing process and licensed its trade secrets to its Chinese foundries. The ITC found that TianRui, Amsted's Chinese competitor, hired employees from Amsted's Chinese foundries, and they disclosed Amsted's trade secrets to TianRui. After finding TianRui misappropriated Amstead's U.S. trade secrets in China, the ITC issued a limited exclusion order against TianRui's products. The U.S. Court of Appeals for the Federal Circuit affirmed.

Discussion

The Single Federal Standard in Trade Secret Misappropriation Analysis

The majority found “a single federal standard” governs trade secret misappropriation analysis under Section 337 because that statute addresses “a distinctly federal concern as to which Congress has created a federal remedy.”4 After noting that Section 337 is not subject to the extraterritoriality presumption, the Federal Circuit found “there is no statutory basis for limiting the [ITC's] flexible authority” in trade secret misappropriation cases.5

The majority's ruling “sets the conditions under which products may be imported into the United States.”6 One of those conditions is compliance with “federal trade secret law,” an ill-defined set of rules that apparently only applies to ITC cases. With this law, an American business may block access to the U.S. market for conduct that may be legal in the country in which it occurred.

Although not condoning TianRui's misappropriation, Moore explained that under the statutory language, “There is nothing inherently unfair about the wheels or the process by which they are imported.”7 Noting the silence in Section 337 about extraterritoriality, she concluded that the plain language of the statute does not authorize scrutiny “of all business practices of the importer associated with the goods including those conducted entirely within [a foreign country].”8 “Nothing in the cited legislative history suggests that Congress intended to give the [ITC] the power to punish individuals for bad acts taking place entirely outside of the United States.”9

Moore also noted that the majority could have upheld the ITC ruling without authorizing such broad extraterritorial application of U.S. law as Amsted itself argued that TianRui's misappropriation occurred in the United States.10 She also expressed her concern that the extraterritorial application of U.S. trade secret law rewards businesses for “deny[ing] the public full knowledge of its innovation while simultaneously exploiting the trade secret by licensing it to a Chinese corporation for use in China.”11

The TianRui-Amtorg Pendulum Swing

The historical significance of TianRui stands out in the context of In re Amtorg Trading Corp.,12 a Section 337 dispute the Federal Circuit's predecessor decided almost eighty years ago. In Amtorg, the U.S. Court of Customs and Patent Appeals faced a similar scenario, where “[m]erchandise not itself patented, manufactured in Russia by a process patented in the United States, but not in Russia, was imported into, and entered the commerce of, the United States.”13 The U.S. Tariff Commission (the predecessor of the ITC) held that the importation of a product made overseas by infringing a U.S. process patent is an unfair method of competition in violation of Section 337.14

A divided CCPA panel reversed, concluding that Section 337 lacks extraterritorial application under the Patent Act.15 Similar to Moore's view that “[f]oreign conduct is generally the domain of foreign law,”16 the CCPA concluded, “[T]he protection which the laws of the United States afford is limited to the Territory named in the statute.”17 Holding otherwise would render unfair competition “the importation of any merchandise the cost of which to the importer was lower than the price he would have to pay for a similar or competitive article produced in the United States … .”18 Moore shared a similar concern that regulating foreign conduct under the U.S. standard of “unfair” could create a slippery slope. “[W]hat we consider to be unfair business practices” could include violation of other U.S. laws such as the minimum wage requirement under labor law.19

The Amtorg dissent called on the court “to save American industries” and warned that foreign violation of U.S. intellectual property laws “is a matter of the gravest concern in our international commerce today.”20 As the TianRui majority concluded, Congress responded to this call by rejecting Amtorg majority's statutory construction and codifying 19 U.S.C. 1337a (1940) for process patents.21

TianRui majority's willingness to “protect[] domestic commerce” is compelled by the underlying U.S. market reality, that is, “misappropriated trade secrets are used in the manufacture of the imported goods, the misappropriation will frequently occur overseas, where the imported goods are made.”22 The rallying cry of the Amtorg dissent—“to save American industries”23—appears the catalyst for the majority ruling in TianRui.

Line Drawing in the Extraterritorial Application of U.S. Intellectual Property Laws

The Amtorg/TianRui dichotomy highlights the continued tension of how to protect American competitiveness in an increasingly borderless global market. Ultimately, Congress may have to act to balance various competing interests.

Indeed, six years ago, the U.S. Supreme Court called on Congress to act when it ruled against the extraterritorial application of U.S. patent law.24 In Microsoft Corp. v. AT&T Corp., Microsoft sent a single master disk of Windows software from the United States to third parties in a foreign country, who copied the master disk and loaded the copied software onto computers made abroad.25 When those foreign-made computers, with the copied software, entered the United States, AT&T sued Microsoft for patent infringement.26 The Supreme Court held that U.S. patent law does not apply to any extraterritorial activity and thus, Microsoft was not liable under 35 U.S.C. 271(f).27 “The absence of anything addressing copying in the statutory text weighs against a judicial determination that replication abroad of a master dispatched from the United States ‘supplies' the foreign-made copies from the United States within the intendment of § 271(f).”28 Acknowledging that this ruling may bring about certain loopholes in Section 271(f) of the Patent Act, 35 U.S.C. §271(f), the Supreme Court concluded that any such loophole “is properly left for Congress to consider, and to close if it finds such action warranted.”29

The TianRui majority did not wait for Congress. It found Moore's construction would render the ITC powerless in providing remedy where “the misappropriating party was careful to ensure that the actual act of conveying the trade secret occurred outside the United States.”30 Such “a conspicuous loophole” is “highly unlikely.”31 As a result, although the extraterritorial application of U.S. patent law may have a “narrow construction”32 under Microsoft, there is “no statutory basis for limiting” extraterritorial application of trade secret law in Section 337 proceedings under TianRui.33

The majority opinion found support from Steele v. Bulova Watch Co.,34 a Supreme Court case from sixty years ago. In Bulova, the plaintiff sued a U.S. citizen under the Lanham Act for infringing a U.S. trademark in Mexico and selling the infringing products to U.S. citizens in Mexico. The Court considered whether a U.S. district court can “award relief to an American corporation against acts of trade-mark infringement and unfair competition consummated in a foreign country by a citizen and resident of the United States.”35 In a 6-2 opinion, the Court ruled in favor of the trademark owner and held the Lanham Act applicable to extraterritorial activities.36

Although Bulova and TianRui involve different facts and laws, the breakdown among the Bulova justices notably resembles that of the TianRui panel. As the TianRui majority did, the Bulova majority rejected the argument that acts occurring in Mexico are beyond U.S. laws.37 There is no “blank immunity on trade practices which radiate unlawful consequences here, merely because they were initiated or consummated outside the territorial limits of the United States.”38 As such, the wrongdoer cannot “evade the thrust of the laws of the United States in a privileged sanctuary beyond our borders.”39

The dissenting Bulova justices, as Moore did in TianRui, pointed to the silence in the relevant statute: where the statute does not have “specific words to reach acts done within the territorial limits of other sovereignties,” Congress intends to confine the law within U.S. borders.40 The dissenting justices took issue with the majority's “extensions of power” and pointed out that other nations “are fully capable of punishing infractions of their own laws.”41 In TianRui, Moore reiterated that concern and criticized the majority for policing foreign business conduct.42

Viewed in the historical context of Supreme Court cases such as Microsoft and Bulova, TianRui reflects the continuing judicial divide over the territorial limits of U.S. laws. As an increasingly global economy brings more international trade opportunities and consequently more trade disputes, further clarity and certainty in this area of the law would be necessary and essential for the international trade community.

Conclusion

TianRui delivered an all-encompassing victory to Amsted and American businesses alike.43 American businesses may look to the ITC to protect their trade secrets around the world and stop foreign competitors' goods at the border. The ITC, now armed with the authority to rein in trade secret misappropriation by foreign companies on foreign land, may become an even more desirable forum for American businesses.

In addition, because trade secret does not have any limit in duration and broadly encompasses “any formula, pattern, device or compilation of information which is used in one's business,”44 it may become the intellectual property protection of choice for American businesses in Section 337 proceedings. Facing competition from foreign countries where trade-secret protection may be weaker than that of the United States, American businesses may find a remedy under TianRui.

Zhenyu Yang, associate, and Bob Yoches, partner, are patent litigation attorneys in Finnegan Henderson's Washington, D.C., office. Yang focuses in the areas of biotechnology, pharmaceuticals, and medical devices. Yoches has considerable experience in patent litigation, frequently representing clients from Asia, particularly, Taiwan, China, and Japan, often in complex cases involving electronic and computer technologies. Yang wishes to thank Lilan Ren, her former colleague at the Federal Circuit, for her review and comments.

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