Cyber attacks against U.S. entities—including theft of assets, vandalism of property, interference with business transactions, and misappropriation of trade secrets—have proliferated over the past few years. Cyber attack victims this year have included Apple, Facebook, and Microsoft. Damon Poeter, Microsoft Joins Ranks of the Tragically Hacked, PCMag.com (Feb. 22, 2013), www.pcmag.com/article2/0,2817,2415787,00.asp. The U.S. government has now taken notice. The head of the National Security Agency recently declared that cyber attacks have accounted for the “greatest transfer of wealth in history.” China, US Hacking Dispute Heats Up, IndustryWeek (June 24, 2013), http://www.industryweek.com/information-technology/china-us-hacking-dispute-heats. The significance of the trend was also recognized by the White House earlier this year when it issued an Executive Order setting forth voluntary standards and best practices to reduce cyber risks to critical infrastructure. Improving the Security of the Nation’s Critical Infrastructure, The White House Blog (April 13, 2013), http://www.whitehouse.gov/blog/2013/02/13/improving-security-nation-s-critical-infrastructure. Technology is constantly evolving, and foreign perpetrators of cyber attacks, enabled by increasingly sophisticated tools, pose a greater danger to U.S. companies’ trade secrets than ever before. See, e.g., Joseph Menn, U.S. Bank Website Hackers Used Advanced Botnets, Diverse Tools, NBC News (Oct. 2, 2012), http://www.nbcnews.com/technology/u-s-bank-website-hackers-used-advanced-botnets-diverse-tools-6238850 (noting use of web server-based, as opposed to personal computer-based, botnets as example of “sophisticated and diverse tools” used by contemporary hackers). Such cyber thieves may cause further harm to the victims of cyber attacks by employing stolen trade secrets in competing products in the U.S. marketplace.
These attacks, which are perpetrated over the internet and through computer networks, and which typically target companies’ confidential information, can often be traced back to foreign entities. U.S. companies face many challenges to remedying the effect of such unfair conduct. One forum to consider in seeking recourse is the U.S. International Trade Commission (“ITC”) pursuant to Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337. Trade secret misappropriation claims at the ITC provide many advantages over traditional mechanisms of pursuing foreign cyber thieves, including the ability to obtain remedial orders excluding any of the thieves’ products that utilize stolen trade secrets from the United States and streamlined mechanisms for obtaining discovery abroad.
Cyber Attacks and Trade Secret Misappropriation
Federal and state laws offer various legal remedies to combat cyber trade secret misappropriation. See, e.g., Economic Espionage Act, 18 U.S.C. §§ 1831-1839 (criminalizing theft or misappropriation of trade secrets); Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (criminalizing disclosure of protected information through unauthorized computer access); 765 Ill. Comp. Stat. Ann. 1065/2. When cyber attacks originate abroad and lead to theft of trade secrets, pursuing claims in a federal or state court generally requires litigants to go through the laborious process of conducting foreign discovery pursuant to the provisions of the Hague Convention. Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, Mar. 18, 1970, 23 U. S. T. 2555. This requires additional time and resources, and can make the discovery process difficult and time consuming. Hague Convention on Taking of Evidence Abroad in Civil or Commercial Matters, U.S. Department of State (undated), http://travel.state.gov/law/judicial/judicial_689.html (estimating that it will generally take six months to a year to execute a Request under the Hague Convention) (internal citations omitted). Additionally, plaintiffs in district and state court may be foiled by jurisdictional problems in pursuing trade secret misappropriation claims. For example, in Wistron Corp. v. Phillip M. Adams & Assocs., C-10-4458 EMC, 2011 WL 4079231 (N.D. Cal. Sept. 12, 2011), the court found it lacked jurisdiction to hear a defendant’s counterclaim for trade secret misappropriation where defendant could show “no factual nexus to Utah—e.g., [defendant] has no connection to Utah (thus no injury was suffered there) and the alleged misappropriation took place in Asia.” Id. at *7.
Trade Secret Misappropriation Claims at the ITC
The ITC presents a compelling forum for pursuing trade secret misappropriation claims. Section 337 of the Tariff Act of 1930 empowers the ITC to investigate “. . . [u]nfair methods of competition and unfair acts in the importation of articles . . . .” 19 U.S.C. § 1337(a)(1). For over three decades, the misappropriation of trade secrets has constituted an “unfair method of competition or unfair act which falls within the purview of Section 337.” Certain Processes for the Manufacture of Skinless Sausage Casings and Resulting Products, Inv. No. 337-TA-148/169, USITC Pub. 1624, Initial Determination at 244 (Nov. 1984) (“Sausage Casings”); see also Certain Apparatus for the Continuous Production of Copper Rod, Inv. No. 337-TA-52, USITC Pub. 1017, Comm’n Op. at 38 (Nov. 1979) (“Copper Rod”). The recent Federal Circuit decision in TianRui Group v. International Trade Commission, 661 F.3d 1322 (Fed. Cir. 2011) (“TianRui”), affirmed the ITC’s role in protecting companies with a U.S. presence against the theft of trade secrets.
In TianRui, a U.S. manufacturer of cast steel railway wheels, Amsted Industries, owned secret processes for manufacturing such wheels. Amsted licensed one of its processes to several companies in China. TianRui, a competing Chinese company, sought a license for that same process from Amsted, but the parties could not reach an agreement. TianRui then approached one of Amsted’s Chinese licensees and hired away several employees with knowledge of Amsted’s secret process. Those employees allegedly disclosed Amsted’s process to TianRui, which in turn formed a joint venture that marketed and sold into the U.S. wheels that incorporated Amsted’s secret process. Amsted filed a complaint at the ITC alleging trade secret misappropriation. The ITC found that the importation of TianRui’s wheels, which were made with Amsted’s misappropriated trade secrets, violated Section 337. See Certain Cast Steel Railway Wheels, Processes for Manufacturing or Relating to Same and Certain Products Containing Same, Inv. No. 337-TA-655, USITC Pub. 4265, Comm’n Op. at 1 (Oct. 2011) (“Cast Steel Railway Wheels”). On appeal, the Federal Circuit affirmed the ITC’s determination, finding a violation of Section 337 based on trade secret misappropriation. TianRui, 661 F.3d at 1324. Interpreting Section 337 in a “broad and flexible” way, the Federal Circuit held that the ITC’s authority to restrict the importation of goods produced through trade secret misappropriation applies to situations where none of the alleged acts of misappropriation occurred in the United States if all the other requirements of the statute are met. Id. at 1331, 1332.
Unsurprisingly, since TianRui, the ITC has seen a spike in trade secret misappropriation claims against foreign entities. Between the issuance of that decision in October 2011 and the beginning of 2013, the ITC received six complaints, including one enforcement complaint, involving trade secret misappropriation claims. As a point of comparison, the ITC instituted only five such investigations between 1996 and 2011. Jeffrey M. Telep & Taryn Koball Williams, A Surge in Trade Secret Misappropriation Cases at ITC, Law360 (Feb. 1, 2013, 12:50 PM), http://www.law360.com/articles/411608/. A complaint alleging misappropriation of trade secrets surrounding certain technology used in cranes was filed as recently as June 2013. See Certain Crawler Cranes and Components Thereof, USITC Docket No. 2960, Compl. (June 12, 2013).
An Overview of Trade Secret Misappropriation Investigations at the ITC
In order to bring a trade secret misappropriation case at the ITC, a complainant must meet the requirements for proving a trade secret misappropriation under federal common law. TianRui, 661 F.3d at 1327-28. Additionally, a complainant must show that there was importation or sale of an article that practices or was made with a process that practices that misappropriated trade secret. A complainant must also meet the domestic industry requirement under subparagraph (a)(1)(A) of Section 337, which differs from claims brought under subparagraphs (B) through (E), which relate to “statutory intellectual property (such as patents, copyrights, and registered trademarks) . . . .” Id. at 1335. If the ITC finds the respondent violated Section 337, then it will issue an exclusion order and/or cease and desist order to enjoin respondents’ accused articles from being imported into or sold within the United States, if such a remedy is not contrary to the public interest.
Trade Secret Misappropriation
In order to prevail on a claim of trade secret misappropriation, a complainant must show “the existence of a trade secret which is not in the public domain.” Copper Rod, Inv. No. 337-TA-52, USITC Pub. 1017, Comm’n Op. at 38 (Nov. 1979). In determining whether a trade secret exists under federal common law, the ITC looks to the Restatement of Unfair Competition and the Uniform Trade Secrets Act (“UTSA”) as well as prior Commission determinations. TianRui, 661 F.3d at 1328. The UTSA defines a “trade secret” as “information, including a formula, pattern, compilation, program, device, method, technique, or process” that both has “independent economic value” and is the “subject of [reasonable] efforts . . . to maintain its secrecy.” UTSA § 1(4) (1985). To prove that a trade secret was not “in the public domain,” a party must show that the trade secret did not encompass “matters of general knowledge in the industry, or those that can be readily discerned . . .” Sausage Casings, Inv. No. 337-TA-148/169, USITC Pub. 1624, Initial Determination at 246. Unlike other intellectual property, a party “may lose [trade secret] protection if adequate steps are not taken to maintain secrecy.” Id. Additionally, in order for a complainant to have standing before the ITC, it must “establish ownership of the asserted trade secrets.” Copper Rod, Inv. No. 337-TA-52, USITC Pub. 1017, Comm’n Op. at 38 (requiring that “complainant is the owner of the trade secret or possesses a proprietary interest therein”).
Once a complainant has shown ownership of a trade secret, it must then demonstrate that the trade secret was misappropriated. See Sausage Casings, Inv. No. 337-TA-148/169, USITC Pub. 1624, Initial Determination at 247 (“Once it is established that a trade secret exists and that its secrecy has been adequately protected, it must be determined how respondent gained access to the information.”). Misappropriation can occur through either the use of “improper means” or the breach of a confidential relationship. See UTSA § 1(2); see also Copper Rod, Inv. No. 337-TA-52, USITC Pub. 1017, Comm’n Op. at 38 (requiring that “the complainant disclosed the trade secret to respondent while in a confidential relationship or that the respondent wrongfully took the trade secret by unfair means”); TianRui, 661 F.3d at 1328 (“TianRui obtained access to Amsted’s confidential information through former Datong employees, who were subject to duties of confidentiality imposed by the Datong code of employee conduct . . .”).
Section 337 is fundamentally a trade statute. Accordingly, a complainant must show that respondents import articles, or sell imported articles that utilize the trade secret. 19 U.S.C. § 1337(a)(1)(A); see also TianRui, 661 F.3d at 1335 (Section 337 “applies to goods that are presented for importation” into the United States).
A complainant must also show that the threat or effect of such importation or sale of imported articles utilizing the misappropriated trade secret: (i) has destroyed or substantially injured an industry in the United States, (ii) has prevented the establishment of an industry in the United States, or (iii) has restrained or monopolized trade and commerce in the United States. 19 U.S.C. § 1337(a)(1)(A). Typically, this involves proving, first, that a domestic industry exists, and second, that this domestic industry has been injured or is under a threat of injury from the importation of the accused articles.
Importantly, trade secret actions brought under Section 337(a)(1)(A) do not require a complainant to prove that a domestic industry exists as to the specific trade secret that was misappropriated. Unlike copyright and patent infringement claims, which require proof of a domestic industry related to the asserted intellectual property rights, a trade secret misappropriation claim only requires that “an industry” be threatened or injured by the accused products. 19 U.S.C. § 1337(a)(1)(A)(i) (emphasis added); TianRui, 661 F.3d at 1335. For instance, a complainant can meet this requirement by demonstrating that the imported articles could directly compete with articles produced domestically by the trade secret owner, even where the domestic article is manufactured using different trade secrets than those that were misappropriated. TianRui, 661 F.3d at 1337.
In determining whether a domestic industry has been substantially injured under Section 337(a)(1)(A)(i), the ITC considers a “broad range of indicia, including the volume of imports and their degree of penetration, lost sales, underselling by respondents, reduction in complainants’ profits or employment levels, and declining production, profitability and sales.” Certain Electric Power Tools, Battery Cartridges, and Battery Chargers, Inv. No. 337-TA-284, USITC Pub. 2389, Initial Determination at 246 (June 1991) (“Electric Power Tools”). The Commission has found that this requirement is met “[w]hen an assessment of the market in the presence of the accused imported products demonstrates relevant conditions or circumstances from which probable future injury can be inferred.” Id.
A successful complainant at the ITC can obtain an exclusion order enjoining the respondent from importing the offending articles into the United States and/or a cease and desist order enjoining domestic manufacture or sale of the relevant articles by the respondent within the United States. 19 U.S.C. § 1337(d), (f). Before issuing any such orders, the ITC is required by statute to consider their effect on the public interest. See 19 U.S.C. § 1337(d)(1). Generally, unless unusual and compelling factors are present—e.g., factors affecting the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, or United States consumers—such considerations do not preclude or alter the proposed remedial orders.
In the context of trade secrets, a “complainant would be entitled to the issuance of a limited exclusion order that covers all of respondents’ [accused products] . . . that are the result of respondents’ misappropriation.” Cast Steel Railway Wheels, Inv. No. 337-TA-655, USITC Pub. 4265, Comm’n Op. at 7 (Oct. 2011). The duration of a remedial order based on trade secret misappropriation is calculated as “the amount of time it would have taken [respondent] to reproduce [complainant’s] trade secret by lawful means, i.e., a reasonable research and development period . . . .” Copper Rod, Inv. No. 337-TA-52, USITC Pub. 1017, Comm’n Op. at 67. Where multiple trade secrets are involved, the ITC looks to the necessary development time “required to develop the complete processes in which the misappropriated trade secrets were used” as opposed to the time it would have taken to develop each trade secret independently. Viscofan, S.A. v. U.S. Int’l Trade Comm’n, 787 F.2d 544, 551 (Fed. Cir. 1986). The term of the remedial order runs from the date of the ITC’s order, not the date of misappropriation. Id. In past trade secret investigations, the ITC has issued orders between five and ten years in length.
Advantages to Bringing Trade Secret Claims at the ITC
The ITC offers several advantages to a U.S. company seeking to respond to cyber attacks conducted by foreign entities from remote locations overseas. For example, the ITC permits a complainant to obtain discovery from a foreign respondent without the same procedural hurdles found in district court. See 19 C.F.R. § 210.27 – 210.34 (governing discovery at the ITC). This advantage derives from the fact that the ITC has national in rem jurisdiction over imported products, regardless of whether such products are imported or sold by a foreign or domestic party.
The time within which an aggrieved party may obtain relief can also be expedited in the ITC. ITC investigations are generally conducted at a much faster pace than district court proceedings. All § 337 investigations must be concluded within 16 months of being instituted, absent extenuating circumstances. Further, while the Commission Rules calculate a respondent’s response time differently depending on the means of service on foreign parties, the remaining Commission Rules apply equally to both foreign and domestic respondents. Thus, a foreign party to an investigation may only decide not to appear at its own peril, and a failure to respond can result in a finding of a § 137 violation by default judgment, with the consequence of exclusion of the respondent’s products from the United States market. See C.F.R. sections 210.16, 210.17.
Not surprisingly, these advantages inure to the benefit of an aggrieved complainant. In at least one case, a party was able to obtain protection for its domestic industry while the local courts where the misappropriation occurred—in France and Spain—declined to pursue claim altogether. See Sausage Casings, Inv. No. 337-TA-148/169, USITC Pub. 1624, Comm’n Op. at 12.
Given the advantages available to a complainant at the ITC, including the ability to exclude articles made with trade secrets misappropriated abroad, the different mechanisms for obtaining foreign discovery, and rapid timetable in which relief can be obtained, the ITC is an attractive forum for pursuing the theft of trade secrets stolen through cyber attacks.