Tianrui Grp. Co. v. Int'l Trade Comm'n

• Decision Date: 01 February 2012
• Docket Number: No. 2010–1395.,2010–1395.
• Parties: TIANRUI GROUP COMPANY LIMITED and TianRui Group Foundry Company Limited, Appellants,andStandard Car Truck Company, Inc. and Barber TianRui Railway Supply, LLC, Appellants, v. INTERNATIONAL TRADE COMMISSION, Appellee,andAmsted Industries Incorporated, Intervenor.
• Court: U.S. Court of Appeals — Federal Circuit

100 U.S.P.Q.2d 1401

33 ITRD 1385

661 F.3d 1322

TIANRUI GROUP COMPANY LIMITED and TianRui Group Foundry Company Limited, Appellants,andStandard Car Truck Company, Inc. and Barber TianRui Railway Supply, LLC, Appellants,

v.INTERNATIONAL TRADE COMMISSION, Appellee,andAmsted Industries Incorporated, Intervenor.

No. 2010–1395.

United States Court of Appeals, Federal Circuit.

Oct. 11, 2011.Rehearing and Rehearing En Banc Denied Feb. 1, 2012.

Tom M. Schaumberg, Adduci, Mastriani & Schaumber, LLP, of Washington, DC, argued for all appellants. With him on the brief for TianRui Group Company Limited, et al., was Jonathan J. Engler. Also on the brief, were Joel M. Freed, McDermott Will & Emery, LLP, of Washington, DC; and Ruixue Ran, Jun He Law Offices, of Beijing, P.R. China. Of counsel were Steven H. Hoeft, McDermott, Will & Emery, LLP, of Washington.

Andrea C. Casson, Assistant General Counsel, Office of the General Counsel, United States International Trade Commission, of Washington, DC, for Appellee. With her on the brief were James M. Lyons, General Counsel, and Clint A. Gerdine, Attorney.

Dean A. Pelletier, McAndrews, Held & Malloy, Ltd., of Chicago, Illinois, for intervenor. With him on the brief were Gregory J. Vogler, Wilhelm L. Rao, Yufeng Ma, and Michael J. Krautner. Of counsel on the brief were Lyle B. Vander Schaaf and Jay H. Reiziss, Brinks Hofer Gilson & Lione, of Washington, DC.

Before BRYSON, SCHALL, and MOORE, Circuit Judges.

Opinion for the court filed by Circuit Judge BRYSON. Dissenting opinion filed by Circuit Judge MOORE.

BRYSON, Circuit Judge.

This appeal arises from a determination by the International Trade Commission that the importation of certain cast steel railway wheels violated section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337. The Commission found that the wheels were manufactured using a process that was developed in the United States, protected under domestic trade secret law, and misappropriated abroad. We are asked to decide whether the Commission's statutory authority over “[u]nfair methods of competition and unfair acts in the importation of articles ... into the United States,” as provided by section 337(a)(1)(A), allows the Commission to look to conduct occurring in China in the course of a trade secret misappropriation investigation. We conclude that the Commission has authority to investigate and grant relief based in part on extraterritorial conduct insofar as it is necessary to protect domestic industries from injuries arising out of unfair competition in the domestic marketplace.

We are also asked to decide whether the Commission erred by finding that the imported wheels would injure a domestic industry when no domestic manufacturer is currently practicing the protected process. In light of the evidence before the Commission regarding the marketplace for cast steel railway wheels, we affirm the Commission's determination that the wheel imports threaten to destroy or substantially injure an industry in the United States, in violation of section 337.

I

A

Amsted Industries Inc. is a domestic manufacturer of cast steel railway wheels. It owns two secret processes for manufacturing such wheels, the “ABC process” and the “Griffin process.” Amsted previously practiced the ABC process at its foundry in Calera, Alabama, but it no longer uses that process in the United States. Instead, Amsted uses the Griffin process at three of its domestic foundries. Amsted has licensed the ABC process to several firms with foundries in China.

TianRui Group Company Limited and TianRui Group Foundry Company Limited (collectively, “TianRui”) manufacture cast steel railway wheels in China. In 2005, TianRui sought to license Amsted's wheel manufacturing technology, but the parties could not agree on the terms of a license. After the failed negotiations, TianRui hired nine employees away from one of Amsted's Chinese licensees, Datong ABC Castings Company Limited. Some of those employees had been trained in the ABC process at the Calera plant in Alabama, and others had received training in that process at the Datong foundry in China.

Datong had previously notified those employees through a written employee code of conduct that information pertaining to the ABC process was proprietary and confidential. Each employee had been advised that he had a duty not to disclose confidential information. Eight of the nine employees had also signed confidentiality agreements before leaving Datong to begin working for TianRui. In the proceedings brought by Amsted before the International Trade Commission, Amsted alleged that the former Datong employees disclosed information and documents to TianRui that revealed the details of the ABC process and thereby misappropriated Amsted's trade secrets.

TianRui partnered with Standard Car Truck Company, Inc., (“SCT”) to form the joint venture Barber TianRui Railway Supply, LLC. SCT and Barber have marketed TianRui wheels to United States customers and have imported TianRui wheels into the United States. Other than Amsted, SCT and Barber are the only companies selling or attempting to sell cast steel railway wheels in the United States.

B

Amsted filed a complaint with the Commission alleging a violation of section 337 based on TianRui's misappropriation of trade secrets. Section 337(a)(1)(A) prohibits “[u]nfair methods of competition and unfair acts in the importation of articles ... into the United States, ... the threat or effect of which is ... to destroy or substantially injure an industry in the United States.”

TianRui moved to terminate the proceedings on the ground that the alleged misappropriation occurred in China and that Congress did not intend for section 337 to be applied extraterritorially. An administrative law judge at the Commission denied that motion based on his view that section 337 focuses not on where the misappropriation occurs but rather on the nexus between the imported articles and the unfair methods of competition. The administrative law judge also rejected TianRui's argument that Chinese courts would provide a better forum for Amsted's complaint.

At the merits stage, the administrative law judge analyzed the alleged misappropriation under Illinois trade secret law. After noting that the Commission has looked to general principles of tort or commercial law in past investigations involving trade secret misappropriation, the administrative law judge cited this court's statement in Leggett & Platt, Inc. v. Hickory Springs Manufacturing Co., 285 F.3d 1353, 1360 (Fed.Cir.2002), that “[t]rade secret misappropriation is a matter of state law,” as the basis for applying state law to this section 337 investigation. He applied Illinois law because Amsted, SCT, and Barber all have their principal place of business in Illinois. He noted, however, that “the Illinois law relating to trade secrets does not differ substantially from the law applied in previous Commission trade secret investigations,” and he then applied general principles of trade secret law, including the six factors defining a trade secret set forth in the comments to section 757 of the Restatement (First) of Torts.

Following a 10–day evidentiary hearing, the administrative law judge found that TianRui had misappropriated 128 trade secrets relating to the ABC process from Datong. That conclusion was based on evidence that included an admission by TianRui's expert that TianRui's foundry used the asserted trade secrets; his only contention was that the trade secrets were not actually secret. In addition, the administrative law judge compared TianRui's manufacturing specifications with secret Datong documents outlining the ABC process and found them essentially identical. In fact, some of the TianRui specifications contained the same typographical errors that were found in the Datong documents. The administrative law judge also relied on similarities in foundry layout between the Datong and TianRui plants. The administrative law judge summarized the evidence as to the appropriation of the trade secrets by saying that “there is overwhelming direct and circumstantial evidence that TianRui obtained its manufacturing process for cast steel railway wheel[s] through the misappropriation of [Amsted's] ABC Trade Secrets.”

Besides contesting the Commission's authority to apply section 337 extraterritorially, TianRui contended that Amsted did not satisfy the domestic industry requirement of section 337 based on the fact that Amsted no longer practiced the ABC process in the United States. Because none of Amsted's domestic operations used the ABC process, TianRui argued that there was no “domestic industry” that could be injured by the misappropriation of trade secrets relating to that process.

The administrative law judge rejected that argument, holding that it was not essential that the domestic industry use the proprietary process, as long as the misappropriation of that process caused injury to the complainant's domestic industry. Applying that standard, the administrative law judge concluded that Amsted's domestic industry would be substantially injured by the importation of TianRui wheels.

The Commission decided not to review the administrative law judge's initial determination and issued a limited exclusion order. TianRui then appealed to this court.

II

The main issue in this case is whether section 337 authorizes the Commission to apply domestic trade secret law to conduct that occurs in part in a foreign country.

Section 337 authorizes the Commission to exclude articles from entry into the United States when it has found “[u]nfair methods of competition [or] unfair acts in the importation of [those] articles.” 19 U.S.C. § 1337(a)(1)(A). The Commission has long interpreted section 337 to apply to trade secret misappropriation. See, e.g., Certain Nut Jewelry and Parts Thereof, Inv. No. 337–TA–229, USITC Pub. 1929 (Nov.1986); Certain Processes for the Manufacture of Skinless Sausage...