New Types of Section 337 Investigations at the International Trade Commission

Most Section 337 investigations allege violations of intellectual property (“IP”) based rights involving patent, registered trademark, or registered copyright infringement (“statutory IP claims”). In such cases, the complainant must establish that a valid and enforceable U.S. patent, trademark, or copyright is being infringed by the importation into the U.S., the sale for importation, or the sale within the U.S. after importation of an accused article, and that a domestic industry exists or is in the process of being established.

In recent years, however, the ITC has seen a sharp increase in the number of Section 337 investigations alleging other types of claims. For example, in 2011, only three investigations alleged non-patent claims, but in 2016 and 2017 the numbers reached twenty and fifteen, respectively.  The statutory language for Section 337 claims is broad and applies to any “unfair methods of competition and unfair acts in the importation of articles.”  19 USC 1337(a)(1)(A).  Based on this language, complainants have asserted claims of trade secret misappropriation, antitrust violations, false advertising, breach of contract, and tortious interference with contractual relations.[1] Indeed, the language is broad enough to support other types claims that are as yet un-tested at the ITC, such as foreign bribery, use of forced labor, and other violations of international or U.S. law by competitors.  For non-statutory IP claims, complainants must establish that the accused unfair methods or acts have the threat or effect of which is “to destroy or substantially injure an industry in the United States,” “to prevent the establishment of such an industry,” or “to restrain or monopolize trade and commerce in the United States.”  19 USC 1337(a)(1)(A).

This article discusses recent investigations with noteworthy non-statutory IP claims.

Theft of Trade Secrets Claims

Claims based on trade secret misappropriation have been on the rise since the Federal Circuit’s decision in TianRui Group Co. v. International Trade Commission, 661 F.3d 1322 (Fed. Cir. 2011). In that investigation, the complainant alleged that TianRui imported steel railway wheels made using trade secrets misappropriated from complainant’s licensee in China.  Even though the misappropriation took place abroad, the Commission considered the conduct, found a Section 337 violation, and issued a 10-year exclusion order.  The Federal Circuit affirmed, holding the Commission could consider extraterritorial conduct when necessary to protect a domestic industry because Section 337 addresses unfair methods of competition and unfair acts in the importation of accused articles.

The TianRui decision is noteworthy for several reasons.  First, it reinforces that Section 337 may be the only means for litigating this type of foreign misconduct, given the inapplicability at the ITC of the presumption against extraterritoriality that applies to statutory claims in federal district court.  Second, the decision confirms that relief under Section 337 is available even when the complainant no longer practices the trade secret domestically, as was the case there.  Finally, the decision shows the scope of relief possible under Section 337.  For a violation based on trade secret misappropriation, exclusion must be for a period of reasonable research and development or independent development.  In the case of TianRui, the Commission found that period to be a decade.

Since TianRui, other complainants have successfully used the ITC to obtain relief for claims of foreign theft of trade secret.  For example, in Certain Electric Fireplaces, Components Thereof, Manuals for Same, Certain Processes for Manufacturing or Relating to Same, and Certain Products Containing Same (No. 337-TA-826), a Florida-based home furnishing provider alleged that a former employee based in China stole trade secrets for its proprietary electric fireplaces.  The trade secrets related to the manufacturing process and specifications, lists of component suppliers and customers, and prototype designs for the fireplaces.  The former employee allegedly had access to the trade secrets and improperly disclosed them to his new company in China, which used the secrets to make similar electric fireplaces for sale in the U.S.  The ITC instituted the investigation, in default found the former employee and his new company had violated Section 337 for trade secret theft, and issued a 5-year exclusion order.

In Certain Rubber Resins and Processes for Manufacturing Same (No. 337-TA-849), complainant SI Group alleged that respondent Sino Legend stole trade secrets for chemical compounds used in the manufacture of tires.  Two SI Group employees with access to the trade secrets had left SI Group in China and joined Sino Legend in China.  Soon after, Sino Legend began making and importing the chemical compounds from China into the United States.  The Administrative Law Judge (“ALJ”) found a violation of Section 337 for theft of trade secrets and recommended a 10-year exclusion order.  The Commission adopted the bulk of the ALJ’s findings, and Sino Legend appealed.  The Federal Circuit summarily affirmed without responding to Sino Legend’s attempt to rehash TianRui or fault the ITC for not according comity to parallel Chinese proceedings.

The bases for the theft of trade secrets claims also have grown. In a recent Section 337 investigation, the complainant advanced a novel claim of theft of trade secrets based on computer hacking.  In Certain Carbon and Alloy Steel Products (No. 337-TA-1002), complainant U.S. Steel alleged Chinese steel producers had imported steel products made using U.S. Steel trade secrets obtained through computer hacking.  It is noteworthy that U.S. Steel alleged the perpetrator of the computer hacking was the Chinese government, which raises a slew of separate issues.  The Chinese steel producers moved to dismiss the trade secret theft claim and sought a second review of the claim by the Commission.  The claim survived both challenges.  Even though U.S. Steel later withdrew the claim, the fact that it survived these early challenges shows its viability.  With increasing cybersecurity breaches, we expect to see more of these types of claims.

We also expect to see more theft of trade secrets claims with the enactment of the Defend Trade Secrets Act of 2016. That Act provided a uniform standard to be applied in federal court for theft of trade secrets claims, whereas previously ITC complainants relied on various state laws.

Antitrust Claims

Section 337 claims based on antitrust violations are also on the rise. In Carbon and Alloy Steel Products, U.S. Steel also alleged that the Chinese steel producers had conspired to fix prices too low in violation of Section 1 of the Sherman Act.  This was the first time in nearly forty years that a complainant had raised an antitrust claim in a Section 337 investigation.  Respondents moved to terminate because U.S. Steel did not plead an antitrust injury, as is required for standing in federal district court.  In particular,  U.S. Steel alleged the price-fixing conspiracy was to set prices too low however, U.S. Steel did not allege predatory pricing.  U.S. Steel argued   Section 337 does not require pleading of an antitrust injury that would be required in a district court complaint—all that is required is an “unfair method of competition” or other “unfair act” in the importation of articles and an injury or threat of injury resulting from that act.  While the Commission terminated the claim in a final determination, central to the Commission’s determination was the recognition that “the Commission has been guided by the express Congressional limitations on federal law in other substantive areas when determining the scope of unfair acts” under Section 337. Carbon Steel and Alloy Products, Comm’n Op. (Majority) at 12.  This ruling is unlikely to have a broad impact on future antitrust claims, as U.S. Steel’s price-fixing claim was atypical.

Shortly after terminating the antitrust claim in Carbon and Alloy Steel Products, the Commission instituted another antitrust-based Section 337 investigation.  In Certain Programmable Logic Controllers (No. 337-TA-1105), the complainant alleged that it had suffered substantial injury from respondent’s alleged (i) hub-and-spoke conspiracy designed to prevent resellers, like the complainant, from purchasing and reselling respondent’s imported programmable logic controllers (“PLCs”) and (ii) a resale price-fixing conspiracy.  The complainant alleged it suffered antitrust injury stemming from these violations of the Sherman Act.  The antitrust claim survived a significant pre-institution challenge by the respondent attacking the sufficiency of the complaint to plead any unfair act in the importation of products.

Lanham Act Claims

The ITC is also seeing an increase in Section 337 claims for violations of the Lanham Act. One area of focus has been false advertising claims relating to drug and medical device cases.  In Certain Potassium Chloride Powder Products (No. 337-TA-1013), a drug manufacturer successfully advanced a novel claim of false advertising of an unapproved drug.[2]  The Commission instituted the investigation, which was settled prior to the hearing.  The complainant drug manufacturer sold the only FDA-approved version of the drug, but respondents held the majority of the market.  The complainant alleged this disparity was due to respondents’ unfair competition of false and misleading advertising.  The complainant alleged that respondents improperly imported a potassium chloride powder product as a dietary supplement but labeled the product as a drug to mislead consumers into believing the product was FDA approved, or the same as complainant’s FDA-approved version.

This framing of the unfair act in terms of false advertising has proven successful in other cases. In Certain Periodontal Laser Devices (No. 337-TA-1070) and Certain Clidinium Bromide & Products Containing Same (No. 337-TA-1109), the Commission instituted investigations in which the complaint similarly alleged unfair acts of false advertising relating to unapproved drugs or medical devices.

But in one recent case, the Commission denied institution.  In Certain Synthetically Produced, Predominantly EPA Omega-3 Products, the complainant filed a complaint alleging unfair acts of false advertising relating to Omega-3 products.  Unlike the complaints discussed above, this complaint focused heavily on the issue of whether the accused products were dietary supplements or unapproved drugs.  As a result, the case drew briefing from parties and non-parties as to whether the ITC had jurisdiction over the claim, or whether it fell within the FDA’s purview.  In an unusual move, the FDA weighed in asking the ITC to deny institution.  In the end, the ITC did just that.  The ITC’s decision not to institute is now on appeal at the Federal Circuit.

In another novel claim from Carbon and Alloy Steel Products, U.S. Steel alleged the Chinese steel producers evaded U.S. antidumping and countervailing duty (“CVD”) orders on Chinese steel imports by submitting false documents and transshipping products through other countries to disguise the steel’s country of origin from U.S. Customs.  U.S. Steel framed the claim as a traditional Lanham Act False Designation of Origin (“FDO”) Claim under Section 337 rather than seeking to enforce the antidumping and CVD orders.  This is important because the remedy under Section 337 is an exclusion order, whereas a circumvention proceeding before Customs and Border Patrol and the Department of Commerce would result in a ruling that the importer owed duties (and perhaps fines and penalties) on the imported goods.  The ALJ dismissed the FDO claim because U.S. Steel’s complaint failed to allege specific acts of importation.  This narrow ruling was directed to the sufficiency of the allegations in the complaint, not the viability of such a claim.  If the Commission determines in a future investigation that such claims are within the scope of Section 337, this approach could be a powerful weapon for U.S. industries to enforce anti-dumping and countervailing duty orders.

Contract Claims

The Commission has not directly addressed whether a contract claim is an unfair act or unfair method of competition under Section 337. But it has instituted an investigation with two contract claims.  In Electric Fireplaces (No. 337-TA-826) discussed above, the home furnishing provider alleged that its former employee had breached a stockholder agreement with non-compete, non-solicitation, and confidentiality provisions.  The provider also alleged that the former employee’s new company had tortiously interfered in contractual relations with customers.  The ALJ found the respondents in default and ruled against them on the contract claims.  The Commission reversed.  By that time, the non-compete and non-solicitation provisions of the stockholder agreement had expired.  Because the Commission can grant only prospective relief, it found no violation of Section 337 on those grounds.  It also found the complaint had omitted any factual allegations concerning the particular confidential information allegedly disclosed, so it found no violation of Section 337 on that basis.  The Commission did not reach the issue of whether the contract claims were within the scope of Section 337.

Conclusion

The number of non-statutory IP Section 337 claims at the ITC is on the rise. Complainants are recognizing that the powerful remedies of Section 337 make the ITC a favorable forum for IP and non-IP claims alike.

[1] Complainants have also asserted violation of state-law Uniform Deceptive Trade Practices Act, common law trademark infringement, and common law trade dress infringement, among other claims.

[2] The authors’ firm, Foley & Lardner LLP, represented the complainants in this investigation.