Knowles, a U.S.-based company that designs audio components for hearing aids, in-ear monitors, and earphones, has filed a Section 337 complaint—Balanced Armature Devices, Products Containing Same, And Components Thereof—claiming that a number of former employees, mostly in China where the Knowles devices are manufactured, misappropriated technical and commercial trade secrets before starting a competing business called Bellsing. The respondents include Bellsing, Bellsing's founder, and a variety of downstream companies that use Bellsing's audio components in their products.
The alleged misappropriation took place entirely in China where the parties' actions are not governed by U.S. law, so Knowles cannot get relief from Bellsing in this matter in federal or state court in the United States. However, they could sue the respondent in China. According to the complaint, Knowles did just that in 2014 and was successful, preventing a different scheme that involved some of the same parties as this dispute. It is not apparent why they are choosing to go to the ITC this time instead of returning to Chinese court.
Because this is a trade secret-based Section 337 case, the complainant will have to show that the accused imports threaten "to destroy or substantially injure an industry in the United States." Knowles's manufacturing operations are in China and it sells to a global market. It's U.S.-based operation includes "plant and equipment and personnel related to Illinois-based research and development, prototyping, engineering, technical support, and other support for its global balanced armature business."
This may be fine to establish the existence of a domestic industry, but to be successful in its Section 337 case, Knowles will have to show that this industry has been injured. The injury Knowles points to in its complaint are the things you would typically expect in a trade secret case: lost sales, lost market share, and lower profit margins due to the introduction of a new competitor. The complaint does not, however, allege that increased competition will quantitatively reduce its level of U.S.-based R&D and tech support investments.
Retaliation Complaint in Korean Batteries Dispute
The ITC is currently conducting an investigation—Lithium Ion Batteries (Inv. 1159)—based on a trade secret dispute between two major Korean multinational corporations: LG and SK. In that case, LG is accusing SK of hiring away a large number of LG's employees to acquire proprietary technology. LG's domestic industry is a factory in Michigan where the company performs final manufacturing activities for batteries it sells to U.S. automakers.
Now, SK has filed its own retaliatory Section 337 complaint—Pouch-Type Battery Cells, Battery Modules, and Battery Packs, Components Thereof, and Products Containing the Same—alleging that some of LG's batteries infringe a patent owned by SK. For its own domestic industry, SK is pointing to a soon-to-be-built factory in Georgia where it plans to manufacture some of the batteries that practice its patent. Like LG, SK's U.S. factory would supply auto manufacturers in the United States.
In patent cases, Section 337 requires only that a domestic industry "exists or is in the process of being established." To show that a domestic industry is being established, a complainant must have already taken concrete steps toward building the industry and there must be a significant likelihood that the industry will develop in the future. SK notes that it has already begun construction of its U.S. factory after a groundbreaking ceremony attended by the Governor of Georgia and the U.S. Secretary of Commerce. One thing not mentioned in the complaint is that the project is being subsidized by the state of Georgia through $300 million in tax incentives.
Photo Credit: bk1bennett