Rubber Match? Resin Trade Secret Battle Results in a Multi-Jurisdictional Draw

On the same day last week, two rival rubber resin companies issued press releases — each claiming legal victory in the same trade secret dispute.

SI Group, a developer of rubber resins and tackifiers, touted its “significant victory” over Sino Legend before the U.S. International Trade Commission.  On the same day, Sino Legend also claimed victory in a parallel Chinese action when the Shanghai No. 2 Intermediate People’s Court rejected SI’s claims concerning the same dispute.

SI ’s ITC complaint alleged that Sino Legend misappropriated SI’s secret manufacturing processes by poaching one of SI’s Shanghai-based employees, Xu Jie.  Xu was allegedly the only person at the plant who had access to the entirety of SI’s secret manufacturing processes.  Shortly after Xu’s departure from SI, Sino Legend began producing competing products.  SI accused Sino Legend of using SI’s secret processes and of filing patent applications that contained misappropriated Sino Legend information.

SI suspected misappropriation, and initiated criminal and civil actions against Sino Legend in China.  SI’s ITC complaint includes some interesting details about the Chinese criminal and civil proceedings — it sounds like SI made an extended effort to obtain relief through the Chinese court systems.

SI says that the Chinese police department obtained an independent technical comparison showing the SI and Sino Legend manufacturing processes were identical, but nonetheless dropped the prosecution based on an alleged lack of evidence.  SI also detailed some struggles to obtain evidence in the civil actions.  And then there were some procedural oddities — the first being SI’s strange decision to dismiss its cases and refile them because it thought the court needed more time to review the technical submissions.  SI then made another strange decision not to proceed even with the re-filed cases when the trial court refused its last minute request to dismiss and re-file again, this time to add another defendant.  (SI apparently made this request the day before trial was about to begin.)

Although the backstory isn’t entirely clear, it appears that when SI failed to appear the Chinese court went forward with the trial and rejected SI’s claims on the merits.  According to Sino Legend, the court held that “more than [half] of SI’s supposed trade secrets are invalid because they are not ‘unknown to the public,’” and that “none of Sino Legend’s technology used to produce SL-1801 is identical or materially identical to any SI trade secret.”  Whatever really happened, SI’s experience seems to confirm our prior report that it is not easy to obtain relief for trade secret misappropriation in China.

Things came out differently in the U.S. proceedings.  On June 17, 2013, the same day the Chinese court issued its decision, ITC Administrative Law Judge Robert K. Rogers, Jr. issued an Initial Determination finding that SI had valid trade secrets, and that Sino Legend and its affiliated companies and two of their controlling shareholders misappropriated them.  (It’s probably not a coincidence that the ITC and Chinese court decisions came out on the same day.  An ITC judge will usually provide a schedule for the issuance of an initial determination.  Sino Legend likely made the Chinese court aware of that date, and the Chinese court may have timed its decision accordingly.)

The ITC Initial Determination is just a summary document, so more information on the U.S. decision is not yet available.  Judge Rogers indicated he will issue more detailed findings after the parties take steps to redact their confidential information.  After he issues those findings, the full ITC will have an opportunity to review the decision and then the parties can appeal to the Federal Circuit. If the ITC adopts Judge Rogers’ determination, Sino Legend said it will appeal.

As previously discussed on this blog, since the Federal Circuit’s ruling in TianRui Group Co. Ltd. v. U.S. International Trade Commission, the ITC can be a desirable forum for companies seeking to fight trade secret misappropriation that occurs abroad.  The ITC’s power to block the importation of products made from misappropriated trade secrets can be a powerful tool to address extraterritorial misappropriation.

But there are two major differences between this case and TianRui.  First, TianRui did not deny theft of trade secrets.  It only challenged the ITC’s jurisdiction over trade secret theft that took place outside the United States.  By contrast, Sino Legend clearly denies misappropriating SI’s secrets and has a Chinese judgment to back it up.  Second, the Federal Circuit in TianRui “detect[ed] no conflict between the Commission’s actions and Chinese law that would counsel denying relief based on extraterritorial acts of trade secret misappropriation.”

How far will the Federal Circuit go in addressing some of these issues it didn’t address in TianRui?  What will happen now that there has actually been a ruling by a Chinese court that no misappropriation took place?  There seem to be fairly significant international comity issues to consider, not to mention more standard claim- and issue-preclusion issues.  And what law will the court apply?  In TianRui, Judge Moore objected in her dissent to the extraterritorial application of U.S. unfair competition law: “Even if Chinese trade secret laws were identical to our laws, this does not give the Commission the power to interpret and apply Chinese laws to TianRui’s unfair acts in China.  If there has been some violation of Chinese law, any remedy must come from Chinese courts.”  It remains to be seen how the Federal Circuit will act when such a remedy is not forthcoming.

UPDATE (July 9, 2013): In response to our post, a Sino Legend representative sent us a comment about the simultaneous timing of the ITC and China court decisions. He stated that it was actually the ITC that advanced the date of its decision to June 17 from a previously-announced date of June 25, for unknown reasons.  Trade Secrets Watch confirmed that the ITC’s amended Procedural Schedule set the final Initial Determination due date as June 25.  The docket did not indicate why the ITC judge issued his decision early.  SI representatives declined to comment.

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