It’s Not Just for Patents Anymore: Using the ITC to Combat Theft of Trade Secrets

Trade secret theft knows no borders in an age of cybertheft and global corporate espionage.  But U.S. district courts are often too slow and procedurally ill-equipped to help in cases of international misappropriation, with several recent cases never getting off the ground because of problems serving foreign defendants.  Increasingly, victims of foreign misappropriation are turning to the U.S. International Trade Commission — a body armed to hit back at trade secret thieves anywhere in the world.

For companies seeking to remedy the theft of trade secrets by overseas perpetrators, the options have been limited, especially if the thief or the products the thief produces are outside of the United States.  Procedural hurdles like obtaining jurisdiction over a foreign company, or the perpetrator’s resident country being inhospitable to claims by an American victim, can thwart an American corporation’s ability to prosecute the foreign theft of its own trade secrets.

An ITC action doesn’t present these obstacles.  First, the ITC is fast — it takes only about half the time to resolve an ITC investigation as it does to get to a final decision in a federal court.  Second, the ITC is often more effective in international situations because, unlike federal courts, the ITC can enforce jurisdiction over foreign companies and has the necessary tools to get discovery from foreigners.  These two necessary steps often can’t be achieved — or achieved effectively — if an American company chooses to bring suit against a foreign competitor in a U.S. district court.

The ITC has in rem jurisdiction over imported products, which means that no questions of personal jurisdiction need to be resolved.  This also makes procedural issues easier in the ITC when suing a foreign defendant.  For example, while American companies trying to effect service abroad can waste time, resources, and perhaps even fail entirely to serve due to complicated Hague Convention requirements, the ITC simply requires that the respondent be served with the complaint by first class airmail.  And service is deemed complete in the ITC upon mailing — a much lower procedural bar to service than in district courts.

And although the ITC can’t grant monetary damages, it can ban companies from importing and selling their goods in the United States.  This can be a crushing blow to competitors given the size of the U.S. market.

In 2011, the Federal Circuit’s ruling in TianRui Group Co. Ltd. v. U.S. International Trade Commission gave some encouragement to corporate victims looking for legal recourse for trade secret theft that occurs overseas.  Even though the trade secrets at issue (1) were stolen in China, and (2) weren’t being used by the trade secret owner in the United States, the Federal Circuit still held that the case could proceed in the ITC.  (As a side note, the Federal Circuit purported to apply a so-called “federal standard” of trade secret law. Whether such a law exists is a discussion for another time.)  The ITC banned TianRui from importing products made with the misappropriated trade secrets for ten years — a huge financial hit to the company.

Since the TianRui ruling, a growing number of companies have started using the ITC as a forum to stop foreign-based misappropriation of trade secrets, whether perpetrated by competitors or by their own (former) employees.

In January 2013, Robotics company Innovation First International filed a complaint alleging that its competitor Zuru Toys, Inc. had paid off one of IFI’s China-based engineers to steal a design for a robotic fish toy, and that CVS was importing and selling the knock-off toy.  The ITC opened an investigation a few weeks later.

And last month, the ITC issued an order banning importation of electric fireplace units made by the Chinese company Shenzhen Reliap.  Twin-Star, a Florida-based company, claimed that one of its former employees who had worked on “kinetic sculptures” including “log sets, ember beds, grates and flames” had stolen its trade secrets and taken them to Reliap.  Soon after hiring him, Reliap started making similar fireplace units — something that neither Twin-Star nor the ITC viewed as a mere coincidence.  In effectively blocking Reliap from the lucrative U.S. market, the ITC showed that it can be an extremely effective venue to address the international misappropriation of trade secrets.