ITC can block imports for trade secret misappropriation outside the United States

In Tian Rui Group v. ITC, the Court of Appeals for the Federal Circuit ruled that the International Trade Commission (ITC) can prevent the importation of products made by a trade secret process misappropriated abroad, if the trade secret was developed in the United States.

In this case, Amsted (and American company) uses a trade secret process to make railway wheels. They license a different process to companies in China and elsewhere. Tian Rui hired former employees of Amsted, in China, to learn Amsted’s secret process. They made wheels, using the secret process, and shipped them to the U.S.

Amsted asked the ITC to block Tian Rui’s importation of the wheels produced by this trade secret method. The ITC issued an exclusion order, which was appealed to the CAFC.

The ITC relied on 19 U.S.C. § 1337(a)(1)(A) which provides the ITC authority over “Unfair methods of competition and unfair acts in the importation of articles . . . into the United States” if it will substantially injure and industry in the U.S. The ITC previously has used this section to bar products based on a variety of non-statutory unfair acts, including trade secret misappropriation. However, this was a case of first impression, with respect to actions taking place entirely outside the United States.

The CAFC, in a 2-1 decision (Bryson & Schall for the majority, Moore dissenting) ruled that while U.S. laws generally do not apply extraterritorially (e.g. outside the United States), the prevention of domestic injury from importation of products made using unfair methods justifies applying the statute to such acts.

The court further held that unfair competition bed actions are Federal, and thus ruled by federal law. Since the statute addresses importation, and provides a remedy in the ITC, federal rules should apply. By federalizing trade secret law, they could reach the conclusion, without expressly suggesting that U.S. trade secret law has extraterritorial reach. The court also noted that the statute does not require the use of the trade secret in the United States.

This ruling, which may yet be appealed, gives a powerful new weapon to U.S. companies, who face unfair competition from abroad. Since the law relied upon is not limited to trade secret misappropriation, the impact of the ruling may be quite broad.

If you believe that a product that is being imported by a competitor was produced using unfair acts, you may consider going to the ITC for a faster path to removing that competing product from the U.S. market. Keep in mind that the ITC judgment does not result in damages awards, but in exclusion orders.

The first challenge to the America Invents Act is against the termination of the private right to enforce false marking. The end to false marking, providing that the only private litigants with a claim are competitors who can show actual harm, became effective immediately after President Obama signed the America Invents Act. It applied to all cases, including those pending. Since then, numerous cases have been dismissed, including some sua sponte.

Ken Brooks had a pending case against Dunlop Manufacturing, in the Northern District of California, San Francisco for false marking, filed back in 2010. In response to Dunlop’s Motion to Dismiss, under the new America Invents Act rules, Mr. Brooks brings a constitutional challenge to the AIA. In his memorandum Mr. Brooks states that he relied upon the statutory right which existed prior to the passage of the AIA, and that this destroyed an existing property interest. He cites to U.S. ex re. Stevens v. State of Vermont Agency of Natural Resources (162 F.3d 195, 2nd Circuit 1998) which held that qui tam plaintiffs have a private property interest in the outcome of such cases.

While the brief is written rather flamboyantly, and likely to appeal to lay readers not the judge, the point is interesting. Mr. Brooks did in fact invest some amount of money in pursuing this case, in the clear expectation of recovery, if he could prove a violation of the false marking act.

Of course, the Supreme Court held unanimously in the United States v. Carlton that retroactive tax laws were constitutional, thus making it unlikely that Brooks would succeed in his claim.

Furthermore, there are at least two cases that held that qui tam actions for false marking are unconstitutional, prior to the passage of the America Invents Act. This may mean that the court would find the act a mere clarification of an existing standard.

The more interesting question is whether, if any challenge is successful, the entire statute would be thrown out, since the America Invents Act does not include a severability clause.

Via Greg Aharonian‘s eponymous newsletter.

As I mentioned in my prior post, the US judge in this case slapped a temporary restraining order on Zynga, so they could not enforce a Brazilian injunction against Vostu. The Brazilian injunction was obtained without a full hearing, and without notifying Vostu, in Brazil, after Zynga sued Vostu in the US court.

The Brazilian order has been stayed by the Brazilian court, while Vostu appeals. The US judge has therefore disolved the TRO, and said that no injunction is likely to be forthcoming. Zynga filed a stipulation with the court in which it said it would not pursue the recovery of any damages in Brazil that were recoverable in the U.S. litigation.

The two cases are going on in parallel again, but the US court has the damages issue in hand. Given that Zynga will not pursue damages in Brazil, they may choose to stop litigation there.

If you look at the pictures you will see why Zynga said “ it is one thing to be inspired by Zynga games, but it is entirely different to copy all of our key product features…”

Vostu’s purpose, according to Zynga is to copy literally every feature of every Zynga game.

Zynga sued Vostu in District Court in California, on June 16th.

Then, they filed another lawsuit on August 2nd in Brazil, Vostu’s home country. The Brazilian judge granted an injunction quickly, telling Vostu it had to shut down its games within 48 hours.

The U.S. District Judge, Edward Davila was not amused. He issued an order restraining Zynga from enfordcing the Brazilian decision. In particular, he noted “Zynga—which chose the U.S. forum first—now seeks to enforce an injunction it obtained abroad that would paralyze this Court’s ability to decide this case.”

So, while Zynga won a round in Brazil, their decision to file the case initially in the U.S. prevents them from enforcing the Brazilian court’s decision.

Lesson learned: Choose your jurisdiction carefully. Especially when looking for an injunction, consider finding a fast jurisdiction, and filing there first. U.S. judges will not look kindly upon a later suit impacting their jurisdiction.

In their first case since the Supreme Court’s KSR v. Teleflex (2007) decision, the Federal Circuit strongly re-affirmed the rule that obviousness cannot be based on references from non-analogous art in the precedential opinion of In re Arnold G. Klein.  Surprisingly, the opinion did not even mention KSR.

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A unanimous three judge panel of the Federal Circuit found in Arris Group v. British Telecommunications (decided May 19, 2011) that if a supplier’s customer is accused of infringement, there may be sufficient Article III case or controversy for a declaratory judgment action by the supplier, even if the supplier was never directly accused of infringement.

In this case, BT contacted a customer of Arris Group (Cable One), claiming they infringed a patent, and pointed to their use of Arris products specifically. There were a series of communications, discussing Cable One’s use or non-use of BT’s patents. Arris then filed for Declaratory Judgment.

The lower court found that Arris did not have standing, since there was no Article III case in controversy, because there was no adverse legal relationship, or reasonable apprehension of imminent suit.

The Federal Circuit reversed the lower court, and relied on MedImmune’s standard of “the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune, 549 U.S. at 127.

Arris’ argument that it had standing because it suffered an economic injury, because of the likelihood that its customer would stop using its product, was quickly discarded. The Federal Circuit noted that MedImmune affirmed that economic injury alone is not sufficient to confer standing, and that an “adverse legal interest” was still required.

However, the unanimous court then turned around and stated that while the economic injury of having a customer accused of infringement is insufficient, the risk of contributory infringement charges is enough to provide standing for a declaratory action.  The court also noted the numerous communications between BT and Arris, and the fact that Arris was “directly and substantially involved in BT’s infringement and licensing negotiations.”

If you are a company accusing someone of infringement, be aware of the risk of an implied assertion that the supplier is committing contributory infringement.  If your communications imply such contributory infringement, and you communicate directly with that supplier, you are quite likely opening yourself up to a declaratory judgment suit.

A district court in Florida found in CX Digital v. Smoking Everywhere that a communication via instant messenger between company representatives was sufficient to modify the terms of the contract.

In this case, CX Digital was a referrer who had a contract with Smoking Everywhere to refer a maximum of 200 customers per day to their site, for an agreed-upon payment. In an Instant Messenger communication with the Vice President of Advertising, CX Digital asked about the removal of the limit. The VP agreed stating “No Limit.” This was held by the court to be sufficient to modify the contract terms, and bind Smoking Everywhere to the same per referred client payment for an unlimited number of referrals.

Lesson for in-house folks: Train your people that use IM, and realize that it’s not considered oral communication. And pro-actively, put in your contracts that instant messaging, voicemail, blog posting, or oral communications are insufficient to alter the contract.

h/t: Eric Goldman’s post