Fairly or unfairly, China is perceived as the Wild Wild West (or East) when it comes to the protection of intellectual property and trade secrets. Given the perceived lack of protection afforded IP, U.S. companies have become more aggressive in using state and federal remedies to protect their trade secrets. A significant ruling by the U.S. Court of Appeals for the Federal Circuit this week expands the ability of U.S. companies to sue Chinese parties for the misappropriation of trade secrets even though a substantial amount of the activity may have taken place in China. In TianRui Group Co. v. International Trade Commission, Fed. Cir., Case No. 2010-1395 (Oct. 11, 2011), the Federal Circuit has held that the International Trade Commission has statutory authority over conduct occurring in China in the course of a trade secret misappropriation investigation.  

The dissent takes the majority to task for allowing extraterritorial jurisdiction over the following undisputed facts: a Chinese licensee (Datong ABC Castings Company) used a manufacturing process in China which another Chinese company (TianRui Group) misappropriated when it hired Datong’s Chinese employees to make railway wheels in China. 

Amsted Industries, an American manufacturer of cast steel railway wheels, had licensed that manufacturing process to Datong for a foundry in China. TianRui approached Amsted in 2005 to negotiate a similar license but was unable to reach an agreement with Amsted; it then hired nine of Datong’s employees trained in the process at issue to manufacture the wheels. All of the employees had been notified that the Amsted process was confidential and eight of the nine had signed confidentiality agreements. TianRui ultimately sold the wheels in the U.S. through a joint venture.
Amsted filed a complaint with the ITC, arguing that the importation of the wheels violated § 337 of the Tariff Act of 1930, 19 U.S.C. §1937, because the manufacturing process at issue was developed in the U.S. and protected under domestic trade secret law. The administrative judge agreed and rejected arguments by TianRui that Congress did not intend for § 337 to be applied extraterritorially. The ITC elected not to review that decision and issued a limited exclusion order.
After a review of the relevant legislative history, the Federal Circuit found that the ITC properly applied § 337 based on TianRui’s conduct in the U.S. — namely, the importation of the wheels into the U.S.  Conceding that most of the offending conduct took place in China, the Federal Circuit emphasized the ITC was empowered by Congress to set the conditions for which products may be imported into the U.S.
The TianRui Group holding is sure to stir controversy; however, what cannot be disputed is the fact that U.S. companies now have a meaningful remedy to address concerns about protecting their IP in China.