United States: US International Trade Commission Issues Exclusion Order in Trade Secret Case Involving Cast Steel Railway Wheels

Last Updated: February 26 2010
Article by Gary M. Hnath

Originally published February 22, 2010

Keywords: US International Trade Commission, exclusion order, Cast Steel Railway Wheels, Administrative Law Judge, ALJ, Section 337, trade secrets,

On February 16, 2010, the US International Trade Commission in Washington, DC issued a Section 337 exclusion order in Cast Steel Railway Wheels, Processes for Manufacturing or Relating to Same and Certain Products Containing Same, Investigation No. 337-TA-655. While Section 337 is used most often in patent cases, and has not been widely used in trade secret cases in recent years, the Cast Steel Railway Wheels decision demonstrates that the statute provides powerful remedies in trade secret matters and should be considered as an option in any case involving misappropriation of trade secrets.

Section 337 broadly prohibits unfair acts in the importation of articles into the United States. More than 90 percent of the cases under Section 337 involve allegations of patent infringement. The statute is not limited to patent cases, however, and can be used as a remedy to prevent importations involving other unfair acts, such as trade secret misappropriation. In fact, Roger Milgrim, one of the leading authorities on trade secret law, has described the ITC's ability to issue exclusion orders in trade secret cases as "formidable" and "powerful."

In Cast Steel Railway Wheels, the complainant, Amsted Industries Incorporated, filed its complaint with the ITC on August 14, 2008, alleging that two Chinese companies and two US companies were involved in misappropriation of trade secrets relating to the manufacture of cast steel railway wheels. Amsted alleged that the respondents deliberately "poached" nine employees from one of its licensees and used its trade secrets to manufacture competing cast steel railway wheels in China. Amsted also alleged the use of its trade secrets by the respondents in seeking US certification for their products, and in selling, marketing and distributing their products in the United States. Amsted sought an exclusion order preventing entry into the United States of wheels made by the respondents using Amsted's trade secrets, as well as cease and desist orders preventing the respondents from advertising, selling or marketing the accused products in the United States.

After a two-week trial in August, the Administrative Law Judge (ALJ) issued his final Initial Determination (ID) on October 16, 2009, finding a violation of Section 337 by the respondents. He concluded that Amsted owned the asserted "ABC" trade secrets, and therefore satisfied the "domestic industry" requirement. Notably, the ALJ found that Amsted had a domestic industry based on its domestic manufacture of cast steel railway wheels, even though it did not use the specific trade secrets it claimed were misappropriated. This is different from a patent-based case under Section 337, where the complainant must be engaged in activities relating to the asserted patent in order to qualify as a "domestic industry."

The ALJ further held that respondents misappropriated 128 different Amsted trade secrets through disclosure by former employees of Amsted's predecessors, and that "the record contains evidence of a broader attempt by TianRui [one of the Chinese respondents] to conceal its misappropriation of the AMC technology obtained through former DACC [Amsted's predecessor] employees." He rejected the respondents' claim that they had independently developed their technology, finding that there was "no competent evidence" to support the claim.

In the course of his opinion, the ALJ found that there were "serious" issues as to whether documents produced in discovery had been "fabricated, i.e., substantially and materially altered" because the date and origin of the document had been obscured, although the ALJ declined to issue sanctions because ultimately the document received no weight.

The ALJ also held that the respondents' trade secret misappropriation had harmed the complainant's business. He found that "the evidence demonstrates that Amsted's domestic industry has experienced actual injury in the form of sales lost to respondents, underselling by respondents, and Amsted's declining sales and profitability," and that the "inescapable conclusion" was that the respondents' sales "were made directly at the expense of Amsted, and thus directly injured Amsted." He also found that in seeking certification and through its marketing activities, the respondents had directly targeted the US market for railway wheels, and in fact had "targeted, contacted, and marketed TianRui wheels to almost all of Amsted's customers." Thus, the ALJ found that the injury requirement under Section 337 was satisfied.

The respondents petitioned for review of the ALJ's Initial Determination. On December 17, 2009, the Commission determined not to review the ID, therefore upholding the ALJ's decision that the respondents had misappropriated Amsted's trade secrets, and requested briefing on remedy, the public interest and bonding.

On February 16, 2010, the Commission issued its final determination. While the Commission has not released a public version of its opinion, the orders themselves are available. The Commission issued a limited exclusion order lasting for a period of 10 years that prohibits the importation into the United States of cast steel railway wheels, and products containing same, manufactured using any of the asserted ABC trade secrets by or on behalf of the respondents or any of their affiliated business entities. The Commission rejected the respondents' arguments that their products should be excluded for no more than one year, and instead imposed a 10-year ban based on the minimum amount of time it would take to independently develop a commercially viable cast steel railway wheel manufacturing process and corresponding facility layout. The Commission also issued cease and desist orders prohibiting the respondents from importing, selling, marketing, advertising, distributing, offering for sale, transferring, or soliciting US agents or distributors in the distribution of, cast steel railway wheels and products containing the same manufactured using any of the asserted ABC trade secrets.

As a result of the ITC's decision, the respondents are prohibited from importing any products made using the asserted trade secrets, not only those at issue in the ITC investigation. The ITC's exclusion order will be enforced by US Customs. The case is a good illustration of some of the advantages of bringing trade secret cases at the ITC, and the powerful and unique remedies that Section 337 provides to trade secret owners.

Learn more about Mayer Brown's Intellectual Property practice.

Visit us at www.mayerbrown.com.

Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Copyright 2010. Mayer Brown LLP, Mayer Brown International LLP, and/or JSM. All rights reserved.

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