ITC Affirms Trade Secret Violation against Chinese Company for Stealing U.S. Rubber Resin Trade Secrets, Imposes 10-Year Import Ban

The U.S. International Trade Commission has upheld an Administrative Law Judge’s determination that a Chinese company misappropriated its U.S. competitor’s rubber resin trade secrets, and has banned it from importing its products for 10 years.  This is just the latest chapter in the long-running international trade secret dispute between SI Group Inc. and Sino Legend (Zhangjiagang) Chemical Co. Ltd., as previously reported.

The ruling directly conflicts with that of a Chinese court, which reached the opposite conclusion and found that there was no misappropriation.

SI Group charged that in 2007 Sino Legend hired away the former plant manager of SI Group’s Shanghai China chemical plant, who knew all about SI Group’s secret recipe for making a solution that increases the stickiness of an adhesive (called a “tackifier”).  SI Group initially filed trade secret misappropriation claims in the local courts in China, but the Chinese courts found no violation.

After failing to obtain relief in China, SI Group filed its ITC complaint in May 2012 against Sino Legend and a number of individuals and affiliates and business partners.  According to the complaint, by that time Sino Legend had acquired about 70% of the Chinese market for these tackifiers and was rapidly moving in on the SI Group’s U.S. market share.  SI Group alleged that the secret tackifiers are particularly useful in the production of vehicle tires.  Last year, an Administrative Law Judge found in a 716-page opinion that SI Group had trade secrets and that Sino Legend and a number of individuals misappropriated them, and recommended a 10-year general exclusion order.

In its decision last week, the Commission upheld the judge’s decision but allowed imports to continue pending review of the Commission’s decision by the President (subject to payment of a bond).  If the decision stands, then U.S. Customs will block Sino Legend’s products from entering the United States.

While SI Group proclaimed this a major victory and vindication of its rights, the Commission cut back substantially on the broader “general exclusion” order that the Administrative Law Judge had recommended and let two individual respondents off the hook.  A general exclusion order would have extended to any product made using the stolen trade secrets regardless of origin, whereas the limited exclusion order is limited to products made by the named respondents who were held to have misappropriated SI Group’s identified trade secrets.

For its part, Sino Legend says the Commission’s ruling will not substantially affect its business.  Sino Legend’s general manager Corey Xie was quoted as saying, “Of particular note is the ITC’s reversal on what products are affected.  The decision allows our customers to use all Sino Legend tackifiers in any of their non-U.S. production facilities, and then import those products into the U.S. without restriction.”

The ITC’s notice is just a summary as many of the details are still confidential.  A public version of the detailed decision is expected to issue in the next few weeks.  Sino Legend has indicated that it will appeal the decision to the U.S. Court of Appeals for the Federal Circuit, where the court would likely have to address international comity or collateral estoppel issues in reconciling the ITC’s ruling with the conflicting China court decision.

The investigation is Certain Rubber Resins and Processes for Manufacturing Same, Investigation No. 337-TA-849, in the U.S. International Trade Commission.