The growing popularity of the ITC as a regulatory venue with global reach has implications for Taiwanese trade secret owners and investigation targets
A regulatory fence surrounds the United States, blocking the importation of any product that uses or was made using a misappropriated trade secret, among other unfair acts. That fence, called the Tariff Act of 1930, or Section 337, enables the US International Trade Commission (ITC) to investigate any claim of trade secret misappropriation with a nexus to an imported product, even if the trade secret and the alleged misappropriation are entirely extraterritorial.
Trade secret owners have caught on to this power. From 2017 to 2021, the number of active trade secret misappropriation investigations conducted under Section 337 went from one to nine—an 800 percent increase. Prior to that, between 2013 and 2017, cases fairly steadily averaged two per year.
View full image: Active ITC trade secret misappropriation investigations (PDF)
Section 337 has also had a tremendous effect on international trade. In the past ten years, the ITC has handed down exclusion orders exceeding 104 years in aggregate. In 2021, Seoul-headquartered SK Innovation agreed to pay LG Energy Solution US$1.8 billion in cash and royalties to settle LG's trade secret misappropriation claims after the ITC found SK Innovation had violated Section 337.
Unique traits driving the ITC's popularity
Trade secret owners are drawn to the ITC for several reasons that mark the venue as one-of-a-kind:
- Worldwide jurisdiction: The ITC can investigate claims of trade secret misappropriation occurring anywhere in the world, provided the trade secret relates to a physical product imported into the US. More than 80 percent of Section 337 trade secret misappropriation claims since 2011 have concerned conduct in Asia-Pacific, including Taiwan. This worldwide reach often surprises respondents who think that trade secrets created or implemented outside the US, and misappropriated outside the US, are outside the reach of the ITC.
- Mandatory injunction: If the ITC finds that a respondent has violated Section 337, it will issue an order excluding the violating products from entering the US, unless it finds that the public interest weighs against exclusion, which is exceedingly rare. The duration of the exclusionary period is highly fact-dependent, because it corresponds to the time it would have taken to independently develop the trade secrets. Exclusionary periods have ranged from one month for a simple stock pot to 26 years for balanced armature devices used in products like earbuds and hearing aids. The threat of decades of exclusion from the US market can force a respondent to settle with a complainant on better terms than the complainant may have obtained in US district court.
- Speed to trial: The ITC is one of the fastest courts in the US for resolving intellectual property disputes of all kinds—perhaps the last remaining IP "rocket docket" in the country. By statute, Section 337 investigations must conclude at the earliest practicable time. From 2018 to 2022, the average time from commencement of an investigation to final determination by the ITC on the merits was 17.6 months, which includes an approximate six-month delay due to COVID-19. Trade secret misappropriation claims have tended to take about three months longer to resolve on the merits. By comparison, though, the average time to verdict in a trade secret misappropriation case in US district court was about 27.8 months over the same time period. The pace of Section 337 litigation often pushes respondents onto their heels and forces them to play defense; it can also complicate settlement efforts, as parties and their counsel focus on keeping up with the grueling schedule instead of searching for compromise.
- Preclusive effect: Generally, district courts are required to follow ITC decisions regarding trade secret misappropriation claims, which means that the losing party in the ITC cannot re-litigate the same issues in district court. In theory, this means that a trade secret owner could sue an alleged misappropriator in the ITC, swiftly obtain an exclusion order, and then leverage the ITC's finding in district court to obtain money damages. It should be noted that the ITC's patent infringement decisions are not preclusive in district courts.
The injury requirement
It's not all upside in the ITC for complainants, however. Section 337 requires a complainant to satisfy a unique and often complicated element of proof: that the respondent's misappropriation has the threat or effect of destroying, substantially injuring, or preventing the establishment of an industry in the US. This "injury requirement" is intended to protect a club of US companies, universities and inventors from unfair foreign competition. In reality, however, companies from Korea, Singapore, Hong Kong, China and Ireland have all filed trade secret misappropriation claims under Section 337.
To satisfy the injury requirement, a complainant must define a domestic industry and show that the misappropriation has caused, or will cause, substantial injury to it. The ITC will closely scrutinize the injury claim and, if the complainant fails to satisfy this element of proof, will find no violation in the investigation. Most recently, the ITC ordered the administrative law judge in a trade secrets case to assess and rule on an injury claim within 100 days of the beginning of the investigation; if the judge had found no injury, then the case would have ended before the complainant even had an opportunity to argue the merits of its misappropriation claim.
Navigating the fence: Considerations for both sides
A trade secret owner may find the ITC to be an attractive forum to seek redress for trade secret misappropriation if it is trying to address conduct that occurred entirely outside the US, or if speed and an injunction are of paramount importance. Before filing, the trade secret owner should assess the likely exclusionary period and determine whether that period provides sufficient relief, particularly in comparison to the exclusionary period that could be afforded by a finding of patent infringement.
The target of a Section 337 trade secret misappropriation investigation should know that it cannot hide from ITC jurisdiction as long as a relevant product has been imported into the US. A target should retain experienced counsel immediately to begin chipping away at the complainant's head start, to develop defenses to the misappropriation allegations, and to scrutinize the complainant's injury claim.
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