Foreign Trade Secret Cases on the Rise at the ITC

Top Secret

Although Section 337 complaints most often involve allegations of patent infringement, the statute gives the ITC broad power to block imports in response to "unfair methods of competition and unfair acts in the importation of articles."  Among the non-patent non-patent complaints heard by the ITC in recent years, trade secret misappropriation has been the most common. 

That’s been especially true this year, as the agency has already received 4 separate trade secret complaints.  That's nearly 20% of new ITC cases in 2019 and more than the previous two years combined.

One thing that makes the ITC an attractive venue for trade secret litigation is that the Commission has the power to block imports even if the alleged misappropriation of the asserted trade secret occurred entirely in another country where the parties were not subject to U.S. law.  This power was confirmed by the Federal Circuit in TianRui v. ITC in 2011.  

Compared to patent-based ITC complaints, however, trade secret complainants have an additional burden related to domestic industry.  For trade secrets and other "unfair competition" claims, Section 337 requires complainants to show that "the threat or effect [of importation] is to destroy or substantially injure an industry in the United States."  This imposes an additional injury requirement over the more lenient test in patent cases, which merely require complainants to prove that a domestic industry "exists or is in the process of being established."  

In the first trade secret complaint of 2019—Botulinum Toxin Products, Processes for Manufacturing or Relating to Same and Certain Products Containing Same (Inv. 1145)—Allergan (maker of Botox) and Medytox (a Korean company that markets a similar product in foreign markets) have accused Daewoong (another Korean pharmaceutical company) of misappropriating Medytox's trade secrets.  They want to block imports of a new cosmetic injection that could compete against Botox in the United States.  The peculiar thing about this investigation is that one of the complainants is the victim of alleged misappropriation and the other is the domestic industry allegedly injured by imports.  There does not appear to be any relationship at all between the domestic industry and the unfair acts.  

In Bone Cements and Components Thereof (Inv. 1153), complainant Heraeus (a German chemical company) accuses Zimmer Biomet (a U.S.-based medical device company) of misappropriating its formula for bone cement.  The allegations center around a third-party distributor that had access to the formula in order to secure regulatory approval for Heraeus in the European market.  Zimmer Biomet acquired that company and allegedly accessed the data in order to improve its own line of competing bone cement products.  Heraeus's U.S. operations are apparently limited to product distribution and sales support for products design and manufactured abroad.

The third case—Lithium Ion Batteries, Battery Cells, Battery Modules, Battery Packs, Components Thereof, and Production and Testing Systems and Processes Therefor (Inv. 1159)—involves the battery divisions of two Korean corporate giants, and all the events alleged in the complaint occurred in Korea.  Specifically, LG is accusing SK of hiring away hundreds of LG's employees and then using protected trade secrets to develop a more competitive product.  But LG has a facility in the United States where it manufactures batteries for the U.S. automobile market.

Just like the first three trade secrets cases, the accusations in Foodservice Equipment and Components Thereof (Dkt. 3390) also involve foreign misappropriation of trade secrets from a foreign company.  In this case, complainant Vesta is a Chinese manufacturer of commercial kitchen equipment accusing former employees of stealing manufacturing know-how and customer information to set up a competing operation.  The complaint argues that Vesta's customers, which are U.S.-based distributors selling Vesta products under their own brand, have suffered injury as a result of respondent selling lower-priced products to competing U.S.-based distributors.  It is not clear, however, why these allegedly injured distributors are suffering from the existence of an additional supplier while their competitors are benefiting.

The more cases the ITC takes on that adjudicate foreign misappropriation of foreign trade secrets, the more the agency will find itself conducting investigations concurrent with foreign law enforcement agencies as well as foreign civil and criminal courts.  As a statute designed to prevent unfair competition in import trade, Section 337 may be a natural choice to litigate trade secret complaints.  However, if the ITC adopts a permissive approach to domestic industry in these cases, the agency may end up becoming a global trade secret cop that keeps products from American consumers without benefiting the U.S economy.

Image Credit: Michelangelo Carrieri