WEST/CRSNO. 2010-1395
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
. --_ _TIANRUI GROUP COMPANY LIMITED and¢-_-_ _v_-_"NRUI GROUP FOUNDRY COMPANY LIMITED
" Appellants,
and
B_"_ STANDARD CAR TRUCK COMPANY, INC. and
BARBER TIANRUI RAILWAY SUPPLY, LLC
Appellants,
Vi
UNITED STATES INTERNATIONAL TRADE COMMISSION,
Appellee,
AMSTED INDUSTRIES INCORPORATED,]ntervenor.
On appeal from the United States International Trade Commission
in Investigation No. 337-TA-655.
APPELLANTS' REPLY BRIEF ON APPEAL
Tom M. Schaumberg
Jonathan J. EnglerADDUCI, MASTRIANI g4 SCHAUMBERG LLP
1200 17 th Street NW, 5 th Floor
Washington, DC 20036
Telephone: (202) 467-6300
Joel M. Freed
MCDERMOTT WILL & EMERY LLP
600 13 th Street NW
Washington, DC 20005
Telephone: (202) 756-8029
Counsel for Appellants Standard Car
Truck Company Inc. and Barber
TianRui Railway Supply LLC
Continued on next page...
Ruixue Ran
JUN HE LAW OFFICES
China Resources Building
8 Jianguomenbei Avenue
Beijing 100005 P. R. CHINA
Telephone: 86-10-85191300
r.
e-
t,
Counsel for Appellants TianRui Group
Company Ltd, TianRui Group Foundry
Company Ltd and Barber TianRui Railway
Supply LLC
u .'
i .
TABLE OF CONTENTS
I°
II.
INTRODUCTION ........................................................................................... 1
THE COMMISSION HAS NO AUTHORITY TO APPLY
TRADE SECRET LAW EXTRATERRITORIALLY ................................... 2
A° Tianrui Has Not Acquiesced to the Commission's
Determination That It Misappropriated Trade Secrets inChina ..................................................................................................... 2
B° The Commission and Amsted Have Effectively
Conceded That Section 337 Does Not Authorize the ITC
to Apply U.S. State Trade Secret Law Extraterritorially ...................... 4
C° The Commission Forsakes Its Adjudication of Acts in
China Under Illinois Law in Favor of a New Theory ofActs in the United States ....................................................................... 6
° The ID Did Not Find That Any of the Underlying
Acts of Alleged Misappropriation Occurred in theUnited States ............................................................................... 8
2_ The Domestic Acts Identified by the Commissionand Amsted in Their Briefs Do Not Establish
Trade Secret Misappropriation Under Illinois Law ................... 9
, The Domestic Acts Alleged by the Commissionand Amsted in Their Briefs Are Insufficient to
Overcome Morrison's Presumption Against
Extraterritorial Application of U.S. Law .................................. 11
D° The Commission's Interpretation of Section 337 As
Granting Unlimited Extraterritorial Authority to Find
Unfair Acts Abroad Is Unsupported ................................................... 12
l° The Commission's Arrogation of Authority to
Apply U.S. Law Extraterritorially to Find "Unfair
Acts" Overseas Finds No Support in the Statute
and Cannot Be Aligned with Morrison .................................... 12
Ill.
, The Commission Improperly Conflates Its In Rem
Jurisdiction Over Imported Goods with Its Claim
of Authority to Apply U.S. Law Extraterritorially ................... 14
THE COMMISSION ERRONEOUSLY FOUND A
DOMESTIC INDUSTRY WHEN AMSTED ADMITTEDLY
DOES NOT PRACTICE THE ASSERTED TRADE SECRETS
IN THE UNITED STATES .......................................................................... 17
A° The "Plain Language" of Section 337 Does Not Resolve
the Dispute .......................................................................................... 17
o The 1988 Amendments Built on Commission
Precedent and Enacted Discrete Changes to the
Domestic Industry Requirement ............................................... 18
, The 1988 Amendments Left the Statute Essentially
Unchanged with Respect to Non-Statutory IP ......................... 19
B, The Commission Has Consistently Interpreted Section
337 to Require Complainants in IP-Based Investigationsto Utilize the Asserted IP in the United States ................................... 21
, The Commission and Amsted Mischaracterize
Floppy Disk Drives ................................................................... 22
, There Is No Commission Precedent Departing
from the Rule That Complainants in All IP-Based
Investigations Must Use the Asserted IP in theUnited States ............................................................................. 24
, The Investigations Cited Do Not Support the
Commission's Departure from the Requirement
That Complainants in IP-Based Investigations Usethe Asserted IP .......................................................................... 26
° Ink Markers Does Not Support the Commission's
Argument That Domestic Use of Asserted IP Is
Required Only with Respect to Statutory IP Rights ................. 29
IV. CONCLUSION ............................................................................................. 31
ii
TABLE OF AUTHORITIES
Cases
Am. Antenna Corp. v. AmperexElec. Corp., 546 N.E.2d 41 (Ill. App. Ct. 1989) .... 9
Amgen, Inc. v. Int'l Trade Comm'n, 902 F.2d 1532 (1990) ..................................... 15
Bourdeau Bros. v. Int'l Trade Comm'n, 444 F.3d 1317 (Fed. Cir. 2006) ............... 13
Dodrill v. Ludt, 764 F.2d 442 (6th Cir. 1985) ........................................................ ,.. 4
In reAmtorg Trading Corp., 75 F.2d 826 (CCPA 1935) ........................................ 16
In re Banco Santander Securities-Optimal Litig., Nos. 09-MD-02073-CIV,
09-CV-20215-CIV, 2010 WL 3036990 (S.D. Fla. July 30, 2010) ........................ 5
IRSv. NoelEstate, 380 U.S. 678 (1965) ........................................................... 17, 20
Morrison v. NationalAustralia BankLtd., 130 S. Ct. 2869 (2010) ................. passim
Norex Petroleum Ltd. v. Access Indus., Inc.,
No. 07-4553-cv, 2010 WL 3749281 (2d Cir. Sept. 28, 2010) ............................... 5
Viscofan, S.A.v. Int'l Trade Comm'n, 787 F.2d 544 (Fed. Cir. 1986) .................... 13
Other Authorities
H.R. Rep. No. 100-40 (1987) .................................................................................. 19
H.R. Rep. No. 100-576 (1988) .......................................................................... 18, 19
H.R. Rep. No. 76-1781 (1940) ................................................................................ 16
S. Rep. No. 100-71 (June 11, 1987) ............ ;........................................................... 19
S. Rep. No. 1903_ 76th Cong., 3rd Sess. (1940) ..................................................... 16
Administrative Decisions
Certain Apparatus for the Continuous Production of Copper Rod,
Inv. No. 337-TA-52, 1979 ITC LExIS 99 (Nov. 1979) ...................................... 24
Certain Electric Power Tools, Battery Cartridges, and Battery Chargers,
Inv, No. 337-TA-284, 1991 ITC LEXIS 909 (June 1991) .................................. 29
Certain Floppy Disk Drives and Components Thereof,
Inv, No. 337-TA-203, 1985 ITC LEXIS 134 (Sept. 1985) ............................ 22, 23
Certain Hard Sided Molded Luggage Cases, Inv. No. 337-TA-262,
1987 ITC LEXIS 30, Unreviewed ID (Nov. 4, 1987) ......................................... 28
iii
Certain Ink Markers and Packaging Thereof
Inv. No. 337-TA-522, 2007 ITC LEXIS 1450 (Dec. 2007) ................................ 29
Certain Luggage Products, Inv. No. 337-TA-243,
1987 ITC LEXIS 212 (June 1987) ................................................................. 25, 26
Certain Miniature Plug-ln Blade Fuses,
Inv. No. 337-TA-114, 1983 ITC LEXIS 196 (Jan. 1983) ................................... 29
Certain Nut Jewelry & Parts Thereof Inv. No. 337-TA-229,
1986 LEXIS 233 (Nov. 1986) ........................................................................ 26, 27
Certain Processes for the Manufacture of Skinless
Sausage Casings & Resulting Prod.,
Inv. No. 337-TA-148/169, 1984 WL 273803, Unreviewed ID (Dec. 1984) ....... 21
Certain Woodworking Machines,
Inv. No. 337-TA-174, 1987 ITC LEXIS 226 (May 1987) ...................... 25, 26, 28
iv
I. INTRODUCTION
The U.S. International Trade Commission ("the Commission or "the ITC")
and Amsted Industries Incorporated ("Amsted" or "Complainant") have entirely
failed to address, let alone refute, the presumption against the extraterritorial
application of U.S. law expressed in Morrison v. National Australia Bank Ltd., 130
S. Ct. 2869 (2010). They argue, without any support, that no such authorization is
necessary because 19 U.S.C. § 1337 ("Section 337") already gives the Commission
jurisdiction over any importation and, therefore, unbounded authority to find an
"unfair act." See, e.g., Comm'n Br. Parts I.B-I.C.; Amsted Br. Part II. The
Commission further posits a new theory in its brief that the domestic activities
alone of TianRui Group Company Limited, TianRui Group Foundry Company
Limited, Standard Car Truck Company Inc. and Barber TianRui Railway Supply
LLC (collectively, "TianRui" or "Appellants") are sufficient to establish "trade
secret misappropriation" under Illinois law. This theory, which is lawyer argument
and found nowhere in the Initial Determination on Violation and Recommended
Determination on Remedy ("ID") (JA-62-154), is legally erroneous, both as a
matter of the Illinois law that the Commission purports to apply and under
Morrison, and is predicated on a false characterization of TianRui's U.S. activities
as "improper." See Comm'n Br. 16.
Similarly, the Commission's and Amsted's argument that the "domestic
industry" requirement can be satisfied without Amsted's use of the asserted trade
secrets in the United States is legally erroneous. The statute and legislative history
unmistakably show that in 1988 Congress left undisturbed, in relevant part, the
statutory provision that the Commission had consistently interpreted as requiring
complainants in all intellectual property ("IP")-based investigations to practice the
asserted IP in the United States.
II. THE COMMISSION HAS NO AUTHORITY TO
APPLY TRADE SECRET LAW EXTRATERRITORIALLY
A. Tianrui Has Not Acquiesced to theCommission's Determination That It
MisapDrooriated Trade Secrets in China
The Commission erroneously asserts that TianRui, for purposes of this
appeal, "does not dispute the ALJ's holding that 'there is overwhelming direct and
circumstantial evidence that TianRui obtained its manufacturing process for cast
steel railway wheels through the misappropriation of ABC Trade Secrets.'"
Comm'n Br. 11-12. This is false. TianRui has never acquiesced to the ID's
determination that, as a matter of Illinois law, it "misappropriated ABC's trade
secrets" in China (Comm'n Br. 24), but has consistently argued, both before the
Commission and here, that this holding is legally erroneous. See, e.g., Appellants'
Br. on Appeal 8 ("From the outset of this Investigation, TianRui argued that the
Commission had no statutory authority to apply Illinois law extraterritorially to
2
events that transpired exclusively in China and on that basis to find a violation of
Section 337."). This is further reinforced by the Commission's tortured discussion
of Order No. 14 (JA-155-164) and its reliance on unsupported assertions in the
Complaint, as to which the Commission writes "there subsequently were no
findings to the contrary." Comm'n Br. 10. The Commission, however, has no
authority to relieve Complainant of its burden of proof.
The reason the Commission seeks to mischaracterize TianRui as having
acquiesced to the Administrative Law Judge's ("ALJ") holding of
"misappropriation" under Illinois law is clear: without this "admission" by
TianRui, the Commission has no remaining basis to assert that there were "unfair
acts in the importation of articles into the United States," as required to find a
violation of Section 337. Comm'n Br. 26. As discussed infra, the Commission
effectively concedes that it had no authority under Section 337 to apply Illinois
trade secret law extraterritorially, and it does not argue that TianRui's activities in
the United States were themselves "improper" under the Illinois Trade Secrets
Act (ITSA), 765 Ill. Comp. Stat. 1065/2.
TianRui's decision to appeal to this Court only the most significant legal
issues, rather than the findings resulting from the ALJ's application of Illinois trade
secret law to the facts, cannot be interpreted as acquiescence to those findings.
Such an inference is particularly unjustified given that TianRui, from the start of
the Investigation, see JA-155-164, challenged the Commission's underlying legal
authority to adjudicate acts in China. To find otherwise would be contrary to the
record and to principles of judicial economy:
If a judgment could be entirely vacated yet preclusive
effect still given to issues determined at trial but not
specifically appealed, appellants generally would feel
compelled to appeal every contrary factual determination.
Such inefficiency neither lawyers nor judges ought to
court. Litigants ought to be encouraged to expend their
energies on their most compelling issues and
arguments ....
Dodrill v. Ludt, 764 F.2d 442, 444 (6th Cir. 1985) (defendant who appealed
conviction solely on constitutional grounds "was not acquiescing in adverse factual
findings made at this trial"). The same principle applies here: when a party
appeals from a Commission determination, it should not be inferred that the
appellant has acquiesced to every non-appealed issue of fact or law below.
B. The Commission and Amsted Have
Effectively Conceded That Section 337
Does Not Authorize the ITC to Apply U.S.
State Trade Secret Law Extraterritorially
The Commission and Amsted do not challenge TianRui's central legal
argument: Section 337 does not authorize the Commission to apply U.S. state
trade secret law extraterritorially. Neither the ITC nor Amsted discusses Morrison
or disputes the salience here of the Supreme Court's holding that "legislation of
Congress, unless a contrary intent appears, is meant to apply only within the
4
territorial jurisdiction of the United States," and that "the affirmative intention of
the Congress" to apply a law extraterritorially must be "clearly expressed to give a
statute extraterritorial effect." Morrison, 130 S. Ct. at 2877-78 (citations omitted).
It is not surprising that the Commission and Amsted do not dispute that
Section 337 does not authorize the Commission to apply U.S. state law
extraterritorially given Morrison's clarity and the lack of express authorizing
language in the statute. Since Morrison was decided in June 2010, numerous U.S.
courts have embraced its bright-line rule:
The Morrison Court rejected various tests devised over
the years to divine a statute's extraterritorial application
in favor of a bright line rule: "[w]hen a statute gives no
clear indication of an extraterritorial application, it hasnone."
Norex Petroleum Ltd. v. Access Indus., Inc., No. 07-4553-cv, 2010 WL 3749281,
at *3 (2d Cir. Sept. 28, 2010) (citations omitted); see also, e.g., In re Banco
Santander Securities-Optimal Litig., Nos. 09-MD-02073-CIV, 09-CV-20215-CIV,
2010 WL 3036990, at "30-31 (S.D. Fla. July 30, 2010) (citing Morrison and
dismissing case after finding foreign sovereign's interest "clearly outweighs the
United States' nominal interests in what is essentially a foreign dispute"). The
silence of the Commission and Amsted with respect to the territoriality issue in
general, and Morrison in particular, speaks to the indefensibility of the ITC's
extraterritorial application of Illinois law to acts that occurred entirely in China.
C. The Commission Forsakes Its Adjudicationof Acts in China Under Illinois Law in Favor
of a New Theo_ of Acts in the United States
After effectively conceding that Section 337 does not authorize the
extraterritorial application of U.S. state law, the Commission disavows the ID's
overarching finding that, under Illinois law, TianRui misappropriated trade secrets
through acts in China. See ID, at 31-38. The Commission now states that it "is not
in any way adjudicating TianRui's conduct in China" or "portending [sic] to apply
either Section 337 or Illinois law to conduct or activities that occur in China."
Comm'n Br. 17, 26. This statement cannot be reconciled with the ID which
applied Illinois law and relied solely on acts in China to establish TianRui's
"misappropriation of trade secrets." Compare Comm'n Br. 17 with JA-80
("[C]omplainant Amsted and two of the respondents, SCT and Barber, have their
principal place of business in Illinois. Thus, it is Illinois law that governs.") and
JA-98-138, "General Discussion of Respondents' Misappropriation."
The Commission's disavowal of the ID's adjudication of acts in China cannot
even be reconciled with its statements to this Court that the ALJ "found
that... TianRui-SCTB misappropriated the trade secrets via disclosure by former
employees of Amsted's Chinese licensee, Datong ABC Castings Co., Ltd."
Comm'n Br. 3. See also Comm'n Br. 7 ("TianRui subsequently recruited and hired
nine persons who had been or were employees of DACC .... Through these
employees, TianRui acquired the 128 asserted ABC trade secrets .... ")._ All the
acts identified in the ID leading to a finding of "misappropriation" took place in
China; the ID did not identify a single act of "misappropriation" in the United
States. See JA-98-138.
Finally, without "in any way adjudicating TianRui's conduct in China,"
Comm'n Br. 17, it is impossible for the Commission to have found a violation of
the Illinois Trade Secret Act, which requires acquisition by "improper means" or
use "under circumstances giving rise to a duty to maintain its secrecy" or by "a
person who owed a duty.., to maintain its secrecy .... " ITSA 2(b); Amsted
Br. 28. But for the unauthorized adjudication of TianRui's conduct in China, there
would be no basis for the Commission's finding of an "unfair act."
The Commission's abandonment of the 1D's central holding is followed by
its presentation of a completely new theory of trade secret misappropriation under
Illinois law. For the first time, the Commission now argues that "some of the
misappropriation actually took place in the United States and at the United States
border" because TianRui "misappropriated Amsted's trade secrets through the
I Amsted similarly states that "TianRui poached Amsted's licensee's
employees and acquired Amsted's trade secrets" in China. Amsted Br. 9-10.
Amsted also repeats certain factual allegations it made below, id. 14-17, but the ID
made no such findings, and the record does not support Amsted's allegations.
unauthorized commercial use of those trade secrets." Comm'n Br. 15, 22. 2 The
Commission's newfound domestic "acts of misappropriation" are limited to two:
TianRui's efforts (1) to obtain regulatory approval from the American Association
of Railroads to sell its wheels and (2) to sell and market its wheels in the United
States. Comm'n Br. 20-23. These acts are not mentioned in the ID as a basis for
its findings of trade secret misappropriation.
1. The ID Did Not Find That Any
of the Underlying Acts of Alleged
Misappropriation Occurred in the United States
Despite the Commission's belated attempt to re-cast its findings, the ID did
not find that TianRui's activities in the United States satisfy any element of an
Illinois trade secret misappropriation claim. The Commission implicitly
recognizes that the ID did not find that TianRui did anything improper in the
United States, as is evident from the elliptical nature of statements in its brief. For
example, the Commission weakly argues that "a number of the findings upon
which the ALJ relied.., point to additional acts of misappropriation by TianRui"
in the United States, and that the ALJ "looked at" these domestic activities.
2 BP Chemicals Ltd. v. Jiangsu SOPO Corp., 420 F.3d 810 (8th Cir. 2005),
cited by the Commission on page 21 of its brief, is inapposite, because it relates to
analysis of the statutory "commercial activity" exception to the Foreign Sovereign
Immunities Act, 28 U.S.C. § 1605(a)(2), and does not interpret state trade secretlaw. Moreover, neither that case nor General Universal Systems, Inc. v. HAL, Inc.,
500 F.3d 444 (5th Cir. 2007), also relied on by the Commission (Comm'n Br. 21),involves Illinois law.
Comm'n Br. 21-22, 23 (emphasis added). Given the Commission's duty of candor,
its careful phrasing stops short, as it must, of stating that the ID's trade secret
misappropriation holding was based on any domestic acts.
2, The Domestie Acts Identified by the Commissionand Amsted in Their Briefs Do Not Establish
Trade Seeret Misappropriation Under Illinois Law
None of the U.S. acts alleged by the Commission and Amsted constitutes
trade secret misappropriation, even under Illinois law. The Commission ignores
the necessary predicate element, required by Illinois law, of an improper act: there
must be, inter alia, "acquisition of a trade secret of a person by another person
who knows or has reason to know that the trade secret was acquired by improper
means"; or disclosure by a person who "used improper means to acquire
knowledge of the trade secret," or by a party who "owed a duty to the person
seeking relief to maintain its secrecy .... " ITSA 2(b) (emphasis added). There
can be no improper use of a trade secret unless it was improperly acquired through
a breach of confidentiality. See, e.g., Am. Antenna Corp. v. Amperex Elec. Corp.,
546 N.E.2d 41, 44 (Ill. App. Ct. 1989) CA misappropriation of trade secrets occurs
when a person acquires or discovers a trade secret by improper means or discloses
or uses a trade secret in breach of a duty of confidentiality .... ") (emphasis
added).
9
There is no evidence, however, nor does the Commission argue, that there
was any such "improper" acquisition or breach of duty in the United States. In
fact, the Commission makes its argument "regardless of the location of the
originating misappropriation." Comm'n Br. 24. Even Amsted does not
characterize as "improper" the fact that, almost ten years prior to the time they
were hired by TianRui, two Datong ABC Castings Company Limited (DACC)
employees were given "access to ABC Trade Secrets in the United States" when
they were given "training" and subsequently returned to China. Amsted Br. 9. The
Commission simply assumes that TianRui's importation of its wheels was
"improper" based solely on the false statement that TianRui "does not dispute the
ALJ's holding that 'there is overwhelming direct and circumstantial evidence that
TianRui obtained its manufacturing process for cast steel railway wheels through
the misappropriation of ABC Trade Secrets.'" Comm'n Br. 11-12. This
assumption, as previously discussed, is improper and begs the essential legal
question on appeal: whether the Commission has the authority to apply Illinois
law extraterritorially to find "improper" conduct by TianRui, when all the
underlying acts took place abroad. Without these predicate acts, which occurred
entirely in China, none of the domestic activities identified by the Commission
constitutes "trade secret misappropriation" under Illinois law and none can
therefore constitute an "unfair act" under Section 337.
10
3. The Domestic Acts Alleged by the Commissionand Amsted in Their Briefs Are Insufficient to
Overcome Morrison's Presumption Against
Extraterritorial Application of U.S. Law
The domestic acts relied upon by the Commission are also insufficient to
overcome the presumption against extraterritoriality set forth in Morrison, because
simply alleging some domestic conduct cannot cure an improper effort to apply
domestic law extraterritorially. Morrison, 130 S. Ct. at 2884-85. Instead, a
plaintiff must establish that the domestic conduct alleged is of a type that is the
"focus" of that law, as reflected in the statutory text. ld. at 2884. TianRui's
otherwise lawful domestic sales, marketing and regulatory activities, identified by
the Commission in support of its new domestic misappropriation theory (Comm'n
Br. Part I.A.), are not, however, the types of acts that are the focus of Section 337
or Illinois trade secret law. None of TianRui's domestic acts is "improper" unless
one first assumes that unlawful misappropriation has already occurred. Comm'n
Br. 21-23.
Like the plaintiffs in Morrison, the Commission cannot overcome the
presumption against the extraterritorial application of U.S. law by identifying
minor, lawful U.S. acts by TianRui, "[f]or it is a rare case of prohibited
extraterritorial application that lacks all contact with the territory of the United
States." Morrison, 130 S. Ct. at 2884 (emphasis in original). Only those domestic
acts that are "the objects of the statute's solicitude" suffice to overcome the
1"1
presumption against the extraterritorial application of U.S. law. Id. That rule of
analysis forecloses the Commission's and Amsted's belated efforts to rely upon a
lawful domestic actions to establish "trade secrethandful of otherwise
misappropriation."
D. The Commission's Interpretation of
Section 337 As Granting Unlimited
Extraterritorial Authority to Find
Unfair Acts Abroad Is Unsupported
1. The Commission's Arrogation of Authority to
Apply U.S. Law Extraterritorially to Find
"Unfair Acts" Overseas Finds No Support in
the Statute and Cannot Be Aligned with Morrison
The Commission, again ignoring Morrison, argues that "[a]s long as there is
a nexus between the unfair acts, i.e. trade secret misappropriation in this case, and
the importation of the resulting article.., then the Commission has the authority to
find a violation of Section 337(a)(1)(A) and to take appropriate remedial action to
exclude the misappropriated imports .... " Comm'n Br. 23-24. The Commission
thereby again assumes away a central question of law in this appeal: whether the
1TC had the authority to apply Illinois law extraterritorially to find that exclusively
Chinese conduct constitutes an "unfair act."
The Commission points to no language in the statute, however, to support its
blanket arrogation of extraterritorial authority. The Commission's interpretation of
Section 337 cannot be aligned with Morrison, which requires an "affirmative
12
indication" of extraterritorial reach "in the... Act." 130 S. Ct. at 2883. Nothing
in Section 337 affirmatively confers on the Commission plenary authority to apply
U.S. substantive law, let alone state law, to entirely foreign conduct to find "unfair
acts."
The two cases relied on by the Commission to suggest that this C_urt has
endorsed the extraterritorial application of U.S. law through Section 337, Viscofan,
S.A. v. Int'l Trade Comm'n, 787 F.2d 544 (Fed. Cir. 1986) and Bourdeau Bros. v.
Int'l Trade Comm'n, 444 F.3d 1317 (Fed. Cir. 2006), are inapposite. See Comm'n
Br. 27, 28. Although Viscofan did involve trade secrets, the question whether the
Commission had authority to apply U.S. law abroad was not before the Court.
That case, moreover, predates Morrison, which has removed any possible
ambiguity as to the presumption against extraterritoriality. Similarly, Bourdeau
Bros. does not address the extraterritoriality issue but, rather, clarifies that Section
337 applies to domestically produced gray market items that were exported and
subsequently imported. See Bourdeau Bros., 444 F.3d at 1321-23.
The Commission's generic reference to the legislative history of Section 337
is similarly unavailing. See Comm'n Br. 24. Nothing in the legislative history
indicates that Congress intended to give the Commission unfettered extraterritorial
authority to find unfair acts abroad based on U.S. state law "regardless of [the]
original location of the unfair acts." /d. Morrison is clear that "possible
13
interpretations of statutory language," which is the most Section 337's legislative
history can offer, "do not override the presumption against extraterritoriality." 130
S. Ct. at 2883.
2. The Commission Improperly Conflates
Its In Rein Jurisdiction Over Imported
Goods with Its Claim of Authority
to Apply U.S. Law Extraterritorialiy
The Commission's brief, without citing any authority, asserts that it must
have extraterritorial authority, otherwise, it would not be able to comply "with its
mandate to effectively enforce importation based on trade secret misappropriation,
since a tradesecret causes [sic] of action commonly could involve
misappropriation in the overseas manufacture of articles that are then imported into
and sold within the United States." Comm'n Br. 25-26. This position is
unsupportable. Section 337 makes no mention of trade secret misappropriation.
Moreover, there is no statutory basis for the Commission's implication that it
possesses a special congressional mandate to police alleged trade secret
misappropriation abroad that trumps the presumption against the extraterritorial
application of U.S. law. Rather, Morrison applies universally: there is no basis for
a special exception for trade secret actions brought under Section 337. As the
Supreme Court explained:
The results of judicial-speculation-made-law - divining
what Congress would have wanted if it had thought ofthe situation before the court - demonstrate the wisdom
14
of the presumption against extraterritoriality. Rather thanguess anew in each case, we apply the presumption in all
cases, preserving a stable background against which
Congress can legislate with predictable effects.
Morrison, 130 S. Ct. at 2881 (emphasis added).
The Commission claims that TianRui's "proposed interpretation," which it
does not define, would "read Congress' deliberate inclusion of the 'in the
importation' portion out of the statute." Comm'n Br. 25-26. This is not correct.
There is no question that the ITC has in rein jurisdiction over imports, as the
Commission correctly points out (Comm'n Br. 28) and this Court has consistently
affirmed. But the question whether the Commission has the authority to apply
U.S. state law extraterritorially is a question on the merits unrelated to
jurisdiction. 3 The Commission has failed, both in the ID and in its brief to this
Court, to address TianRui's argument that Section 337 does not authorize the
Commission to apply U.S. law extraterritorially to find "unfair acts" based solely
on foreign conduct. The Commission has therefore ignored the fundamental issue
on the merits: whether the presumption against extraterritoriality has been
overcome in this case. See Amgen, Inc. v. Int'l Trade Comm'n, 902 F.2d 1532,
1536 (1990) (issue of jurisdiction is unrelated to whether Complainant can sustain
3 Amsted similarly confuses the Commission's jurisdiction and the question
of statutory authority. See Amsted Br. 30-31.
15
substantive allegations). Jurisdiction over the case based on importation is not
sufficient to allow the Commission to find a violation under Section 337; it must
also have the authority to adjudicate the "unfair act" at issue.
The Commission's failure to grapple with the extraterritorial limitations
imposed by Morrison is particularly apparent in its discussion of the differences
between protection for process patents and trade secrets. See Comm'n Br. 29-31.4
The salient commonality between some trade secrets, as here, and process patents
is that both relate to a means of producing something, rather than to the res itself.
To extend substantive U.S. law to manufacturing processes used abroad to find an
"unfair act" under Section 337 requires express statutory authority.
As discussed at length in TianRui's opening brief, Congress in 1940
expressly created just such an exceptional extraterritorial grant of authority.
Section 1337a was enacted after In re Amtorg Trading Corp., 75 F.2d 826 (CCPA
1935), to allow the Commission to treat the act abroad of process patent
infringement as an "unfair act" under Section 337. S. Rep. No. 1903, 76th Cong.,
3rd Sess., at 1-2 (1940), H.R. Rep. No. 76-1781, at 1 (1940). Congress has not
enacted an equivalent exception for state trade secret law. Consequently, absent
predicate unfair acts in the United States, the Commission has no authority to find
4 Amsted posits a series of nearly identical arguments in its brief. Amsted
Br. 38-41.
16
that the importation of products manufactured overseas using an alleged trade
secret process, as variously defined by the U.S. states, is an "unfair act" within the
meaning of Section 337.
IH. THE COMMISSION ERRONEOUSLY FOUND ADOMESTIC INDUSTRY WHEN AMSTEDADMITTEDLY DOES NOT PRACTICE THEASSERTED TRADE SECRETS IN THE UNITED STATES
Neither the Commission nor Amsted disputes that longstanding agency
interpretations have the "effect of law" when Congress substantially re-enacts the
applicable statutory provision. See IRS v. Noel Estate, 380 U.S. 678, 682 (1965).
While the Commission and Amsted deny the existence of a longstanding agency
interpretation, they fail to identifY even one prior IP-based investigation in which
the Commission found a domestic industry to exist when the Complainant did not
use the asserted IP in the United States.
A. The "Plain Language" of
Section 337 Does Not Resolve the Dispute
It is undisputed that the subsection of Section 337 applicable to this
investigation, 19 U.S.C. § 1337(a)(1)(A)(i), does not define "industry in the United
States" (commonly referred to as "domestic industry"). Both the Commission and
Amsted nevertheless argue for a "plain language" interpretation, emphasizing the
distinctions in the statutory language between subsection 19 U.S.C.
§ 1337(a)(1)(A) governing unfair acts generally and 19 U.S.C. §§ 1337(a)(1)(B)-
17
(E), the subsections specifically applicable to investigations based on certain forms
of federally protected IP (hereinafter referred to as "statutory IP"). Comm'n Br.
34-38; see also Amsted Br. 46-55. The Commission and Amsted are correct in
noting that, with respect to the latter four subsections, the statute explicitly defines
a domestic industry as "relating to the articles protected by [the statutory IP right at
issue]." Comm'n Br. 35 (citing 19 U.S.C. § 1337(a)(2)); see also Amsted Br. 48.
There is no basis, however, for the argument that, by including this explicit
requirement with respect to statutory IP, Congress intended that no such
requirement apply to investigations under the first subsection involving non-
statutory IP.
1. The 1988 Amendments Built on Commission
Precedent and Enacted Discrete Changes
to the Domestic Industry Requirement
Prior to the 1988 amendments, Section 337 did not contain a definition of
the term "industry." See H.R. Rep. No. 100-576, at 634 (1988) (under the heading
"Present law": "[t]here is no specific definition of the term 'industry'"). The
domestic industry requirement, however, had been construed and applied by the
Commission in numerous investigations, which Congress was well aware of when
it enacted the 1988 amendments to Section 337. The legislative history indicates
that the requirement that a domestic industry "relate to" the articles protected by
the statutory IP at issue in newly enacted 19 U.S.C. §§ 1337(a)(2) and (3) was not
18
new but was instead "maintained" from previous practice. S. Rep. No. 100-71,
at 129 (June 11, 1987). Congress simply expanded the definition of "industry" in
19 U.S.C. § 1337(a)(3)(C) to include "substantial investment in [the statutory IP
right's] exploitation, including engineering, research and development, or
licensing," going beyond then-existing Commission precedent. See S. Rep. No.
100-71, at 129; H.R. Rep. No. 100-40 (1987), at 157. The first two factors set
forth in 19 U.S.C. § 1337(a)(3)(A) and (B), "significant investment in plant and
equipment" and "significant employment of labor or capital," were not new. As
recognized by both the Senate Finance Committee and the House Ways and Means
Committee, the original two industry tests had "been relied on in prior Commission
decisions .... " S. Rep. No. 100-71, at 129; H.R. Rep. No. 100-40, at 157.
Contrary to the Commission's argument (Comm'n Br. 37-38), nothing in the
legislative history of the 1988 amendments suggests that Congress intended to
make any further changes to the definition of domestic industry in IP-based
investigations. See H.R. Rep. No. 100-576, at 633-34; see also H.R. Rep: No. 100-
40, at 154-55.
2. The 1988 Amendments Left
the Statute Essentially Unchanged
with Respect to Non-Statutory IP
With respect to investigations based on unfair acts other than infringement
of statutory IP rights, Congress in 1988 simply retained the existing law, enacting
19
current subsection (a)(1)(A) of Section 337 essentially unchanged from the pre-
1988 Section 337(a). Congress' reenactment of pre-1988 Section 337(a)
substantially unchanged in subsection (a)(1)(A) of Section 337 gives "effect of
law" to the Commission's interpretation of the domestic industry requirement under
the pre-1988 law. See Noel Estate, 380 U.S. 678, 682. To suggest otherwise, as
the Commission and Amsted do, is to presume that Congress intended to wipe out
the extensive pre-1988 case law governing non-statutory IP, while providing no
guidance for the future.
Amsted suggests that Congress intended to create two separate, "mutually
exclusive" regimes, one for investigations under subsection (a)(1)(A) and the other
for investigations under subsections (a)(1)(B)-(E). See Amsted Br. 50; see also
Comm'n Br. 37. Following this logic, by which anything explicitly set forth in 19
U.S.C. §§ 1337(a)(2) and (3) is implicitly inapplicable to 19 U.S.C. § 1337(a)(1), a
complainant relying on subsection (a)(1)(A), such as Amsted here, would be barred
from relying on "significant investment in plant and equipment" and "significant
employment of labor or capital" to prove a domestic industry. This would be an
untenable result, as Amsted appears to recognize. See Amsted Br. 50 (providing a
table setting forth alleged differences between investigations under subsections
(a)(1)(A) and (a)(1)(B)-(E), but conspicuously omitting "significant investment in
20:
plant and equipment" and "significant employment of labor or capital" from the
table).
B. The Commission Has Consistently Interpreted
Section 337 to Require Complainants in IP-Based
Investigations to Utilize the Asserted IP in the United States
As set forth in Appellants' initial brief, longstanding Commission precedent
requires the domestic industry in any IP-based investigation - both statutory and
non-statutory IP - to utilize the IP at issue in the United States. See Appellants'
Br. 35-38. Indeed, in the context of trade secret misappropriation, the Commission
has stated unequivocally:
When the unfair acts or methods of competition alleged
under § 337 are based on the misappropriation of trade
secrets, the domestic industry is defined as consisting of
that portion of complainant's domestic operations devoted
to the utilization of the confidential and proprietary
technology at issue which is the target of the unfair acts
or practices.
Certain Processes for the Manufacture of Skinless Sausage Casings & Resulting
Prod., Inv. No. 337-TA-148/169, 1984 WL 273803, Unreviewed ID, at * 120 (Dec.
1984) (emphasis added).
Neither the Commission nor Amsted can point to a single IP-based
investigation in which the Commission found a domestic industry that did not
utilize the asserted IP. Nevertheless, the Commission and Amsted argue that the
Commission applies an unbounded "realities of the marketplace" approach in
2_
defining the domestic industry. Comm'n Br. 44-46; see also Amsted Br. 55-58.
This argument is without merit, as a review of the cases cited by the Commission
and Amsted makes clear.
1. The Commission and Amsted
Miseha racterize Floppy Disk Drives
The Commission and Amsted rely prominently on Certain Floppy Disk
Drives and Components Thereof Inv. No. 337-TA-203, 1985 ITC LEXIS 134
(Sept. 1985), a post-Sausage Casings trade secret-based investigation. See
Comm'n Br. 43-44; Amsted Br. 56-59. That reliance is misplaced. The
Commission and Amsted fail to note that the ALJ's decision in Floppy Disk Drives
explicitly supports TianRui's position that the Commission had an established
practice of requiring complainants in all IP-based investigations to utilize the
asserted IP to establish a domestic industry: "The Commission customarily defines
the domestic industry as the domestic operations of the intellectual property owner
and its licensees devoted to the exploitation of the intellectual property." Floppy
Disk Drives, at *73 (emphasis added).
Moreover, Floppy Disk Drives involved unusual circumstances not present
here, namely, that the asserted unfair acts included not only misappropriation of
trade secrets but also industrial espionage and sabotage, which by their nature
physically prevented the complainant from exploiting the technology at issue in the
United States. See id. at *71-78 (citing evidence showing that "the majority of the
227
drawings [of the technology at issue] were stolen or destroyed and the prototype
deliberately modified to render it useless"). Under these unusual circumstances the
ALJ concluded that the Commission might consider a departure from its
"customary" domestic industry rule and include, within the scope of the domestic
industry, disk drives "functionally comparable to the disk drives that would have
been produced" but for the alleged acts of theft and destruction. Id. at *78.
Finding "substantial factual issues and complicated legal questions that need fuller
development," the ALJ denied summary determination. Id.
Amsted incorrectly states that "[t]he Commission expressly adopted the
ALJ's reasoning" in Floppy Disk Drives regarding the scope of the domestic
industry. Amsted Br. 58; see also Comm'n Br. 43. In fact, the opposite is true: the
Commission merely affirmed the ALJ's denial of summary determination as to the
existence of a domestic industry. Floppy Disk Drives, at *2, 8. The Commission
never reached the merits of the domestic industry issue in Floppy Disk Drives,
because it upheld the ALJ's finding of no violation on other grounds - namely, the
lack of a causal nexus between the accused imports and any injury to complainant.
Id. at *2-4, 153.
23:
2. There Is No Commission Precedent
Departing from the Rule That
Complainants in All IP-Based InvestigationsMust Use the Asserted IP in the United States
The Commission and Amsted both rely on Certain Apparatus for the
Continuous Production of Copper Rod, Inv. No. 337-TA-52, 1979 ITC LEXIS 99
(Nov. 1979), for the proposition that the Commission examines "the realities of the
marketplace" to define the domestic industry, without regard to whether the
Complainant practices the asserted IP in the United States. Comm'n Br. 43-44;
Amsted Br. 63-65. This argument mischaracterizes the Commission's use of the
"realities of the marketplace" analysis in Copper Rod, which it applied to
determine how many domestic industries existed, not whether one existed at all.
In Copper Rod, which involved both patent infringement and trade secret
misappropriation causes of action, the respondents contended that there were three
distinct domestic industries - one devoted to "continuous copper casting mill
apparatus," one devoted to "continuous cast copper rod production," and one
devoted to "spare parts for continuous casting mill apparatus." Copper Rod,
at *94. The Commission determined, in part because "[t]he apparatus and method
patents and the 14 trade secrets at issue are intimately related to the sale of the
complete system," that segmenting the industry into three, as argued by
respondents, would "ignore realities of the market for continuous copper rod
production." Id. at *94-95 (emphasis added). See also Certain Woodworking
24-
Machines, Inv. No. 337-TA-174, 1987 ITC LEXIS 226 (May 1987), at '201 n.172
("The Copper Rod 'commercial realities' test referred to the intrinsic
interrelationships between certain of the design and production patents - and, ergo
the potentially separate industries - involved in that investigation. Since all were
viewed as part of the ultimate production and sales effort relating to one product,
the Commission found that the sepai'ate patents constituted one industry."). This
can hardly be viewed as a departure from the Commission's traditional approach
requiring use of the asserted IP by the domestic industry.
The Commission's reliance on Certain Luggage Products, Inv. No. 337-TA-
243, 1987 ITC LEXIS 212 (June 1987), is similarly misplaced. See Comm'n
Br. 45 (citing Luggage Products for the proposition that "the Commission does not
adhere to any rigid formula in determining the scope of the domestic industry, as it
is not precisely defined in the statute, but will examine each case in light of the
realities of the marketplace"). In Luggage Products, which involved allegations of
trademark infringement, the ID states unequivocally that "[i]n section 337
investigations when trademark infringement is alleged as the unfair act, the
Commission has defined the domestic industry as that portion of the complainant's
facilities devoted to the exploitation of the trademark rights at issue." Luggage
Prods., at "151. Like in Copper Rod, the Commission in Luggage Products did
not use the "realities of the marketplace" approach to depart from the principle that
25
the domestic industry must use the asserted intellectual property, but rather to
answer "the question of whether it is appropriate to find a single domestic industry,
which encompasses all of the trademark rights in issue, or three narrowly defined
domestic industries [based on each of the three asserted trademarks]." Id. at * 152-
53.
Copper Rod and Luggage Products are therefore consistent with and
underscore the rule articulated in Sausage Casings, supra, and provide no support
whatsoever for the view that an unbounded "realities of the marketplace" analysis
had ever previously been used by the Commission to determine whether a
domestic industry exists in the United States.
q
3. The Investigations Cited Do Not Support
the Commission's Departure from theRequirement That Complainants in
IP-Based Investigations Use the Asserted IP
The Commission and Amsted argue that the Commission's pre-1988
approach was to define the domestic industry in terms of the "targeted" industry.
Comm'n Br. 45-46; Amsted Br. 59-67. This is incorrect; two of the investigations
cited, Certain Nut Jewelry & Parts Thereof, Inv. No. 337-TA-229, 1986 LEXIS
233 (Nov. 1986) and Certain Woodworking Machines, supra, involved non-IP
investigations. These cases, therefore, do not provide support for the use of a
"targeted industry" approach with respect to an IP-based investigation. The
Commission's and Amsted's attempt to equate this trade secret misappropriation
26
investigation with the non-IP investigations in Nut Jewelry and Woodworking
Machines must be rejected.
Nut Jewelry involved four alleged unfair acts (false advertising, failure to
mark country of origin, false designation of origin and false representation), none
of which involved an IP right, federally registered or otherwise. See Nut Jewelry,
at *40; see also id. at *110 ("This investigation does not involve intellectual
property rights."). Nevertheless, in an attempt to connect Nut Jewelry to the instant
case, both the Commission and Amsted inaccurately characterize Nut Jewelry as
involving "non-statutory IP." Comm'n Br. 48, Amsted Br. 59-60. Indeed, without
citation to the Nut Jewelry ID, the Commission purports to quote the ALJ in Nut
Jewelry as stating that the case "involved 'non-statutory IP rights.'" Comm'n
Br. 48. Appellants have found no such statement in the Nut Jewelry ID. The
Commission further mischaracterizes Nut Jewelry by stating: "[o]n review, the
Commission agreed [with the ALJ]." Comm'n Br. 48. In fact, however, the
Commission stated that "[w]e disagree with the way the ALJ has defined the
domestic industry." Nut Jewelry, at *63. Nut Jewelry simply has no applicability
here.
Woodworking Machines involved both IP and non-IP causes of action.
Contrary to the Commission's argument, Woodworking Machines affirms that
exploitation of intellectual property rights (including both federally registered IP
27
such as patents and non-federally registered IP such as common law trademarks
and trade secrets) is central to defining a domestic industry in IP-based
investigations:
In previous investigations involving patents ortrademarks, the relevant domestic industry has beendefined in terms of the exploitation of the patents ortrademarks in controversy. In investigations involvingother unfair methods of competition such as falseadvertising or passing off, the Commission has definedthe domestic industry in terms of complainant's U.S.facilities devoted to the production and sale of the articlethat was the subject of the unfair act (e.g., falseadvertising or passing off).
Woodworking Maehs., at "195. See also id. at *200 ("[W]hen several industries
can be defined on the basis of the exploitation of various intellectual property
rights and there is considerable overlap with respect to the products associated with
the industries defined in terms of these intellectual property rights, it may be
appropriate to define the industry in terms of the commonly shared property right
that extends to a grouping of products."); Certain Hard Sided Molded Luggage
Cases, Inv. No. 337-TA-262, 1987 ITC LEXIS 30, Unreviewed ID, at "133 (Nov.
4, 1987) (stating, in a case involving common law trademark infringement, false
representation, common law passing off, and common law unfair competition,
"[t]he domestic industry in intellectual property based § 337 investigations is
composed of the domestic production related to exploitation of the intellectual
property in issue by the intellectual property owner and its licensees").
28
Certain Electric Power Tools, Battery Cartridges, and Battery Chargers,
Inv. No. 337-TA-284, 1991 ITC LEXIS 909 (June 1991), and Certain Miniature
Plug-ln Blade Fuses, Inv. No. 337-TA-114, 1983 ITC LEXIS 196 (Jan. 1983),
cited by Amsted, similarly provide no support for the argument that the domestic
industry is defined "without regard to whether the complainant utilized, practiced
or exploited the non-statutory IP." Amsted Br. 59-61. To the contrary, the ID in
Electric Power Tools explicitly states: "The scope of the domestic industry or
industries is defined in terms of the production-related activities that exploit the
intellectual property rights in issue." Elec. Power Tools, at *316. In Blade Fuses,
the Commission defined the domestic industry in terms of facilities devoted to
articles covered by the asserted patents (thereby reversing the ALJ's decision to
define separate industries for each asserted unfair practice). Blade Fuses, at *51-
52. Nothing in either Electric Power Tools or Blade Fuses even remotely suggests
that a domestic industry can include activities that do not exploit the asserted IP
rights.
o lnkMarkers Does Not Support the Commission's
Argument That Domestic Use of Asserted IP
Is Required Only with Respect to Statutory IP Rights
Amsted argues that the ALJ in Certain Ink Markers and Packaging Thereof,
Inv. No. 337-TA-522, 2007 ITC LEXIS 1450 (Dec. 2007), which involved both
registered trademarks and unregistered trade dress, "expressly declined to conduct
29
a technical prong analysis" for the trade dress cause of action, purportedly
confirming Amsted's view that no utilization of the asserted IP is required in
investigations based on subsection (a)(1)(A) of Section 337. See Amsted Br. 65;
see also Comm'n Br. 47 (arguing that the trade dress claims do not require
exploitation). In fact, the ALJ in Ink Markers, while not literally using the words
"technical prong analysis," did analyze complainant's domestic products to
determine if they practiced or utilized the non-federally registered IP at issue. See
Ink Markers, at '81 (determining the scope of the domestic industry for the trade
dress claims by conducting a "visual inspection" of the markers in question and
eliminating one category of marker that did not embody the trade dress at issue).
Contrary to Amsted's and the Commission's argument, Ink Markers, therefore,
confirms that "utilization" of the IP has remained the Commission's standard in
non-statutory IP investigations subsequent to the 1988 amendments to Section 337.
30
IV. CONCLUSION
For the reasons set forth above, Appellants respectfully request that this
Court reverse the Commission's Determination of Violation
exclusion and cease and desist orders issued in this investigation.
and vacate the
Dated: November 29, 2010 Respectfully submitted,
ADDUCI, I_4_ASTRIANI _; SCHAUMBERG, L.L.P.
1200 17 th Street, N.W., 5th Floor
Washington, DC 20036
Telephone: (202) 467-6300
Ruixue Ran
Jun He Law Offices
China Resources Building
8 Jianguomenbei Avenue
Beijing 100005 P. R. China
Telephone: 86-10-85191300
Counsel for Appellants TianRui Group
Company Limited, TianRui Group Foundry
Company Limited and Barber TianRui Railway
Supply LLC
31
Joel M. FreedMCDERMOTTWILL & EMERYLLP600 13thStreet N.W.
Washington DC 20005Telephone: 202-756-8029
Counsel for Appellants Standard Car Truck
Company Inc. and Barber TianRui Railway
Supply LLC
TIAN700910-2
32'
CERTIFICATE OF SERVICE
I hereby certify that two copies of the APPELLANTS' REPLY BRIEF
ON APPEAL was served as indicated, to those listed below, this 29 th day ofNovember 2010:
James M. Lyons, Esq.General Counsel
Office of the General Counsel
U.S. INTERNATIONAL TRADE COMMISSION
500 E Street, S.W., Room 707-E
Washington, DC 20436
(VIA FEDERAL EXPRESS)
COUNSEL FOR APPELLEE AMSTED INDUSTRIES INCORPORATED
Gregory J. Vogler, Esq.
MCANDREWS, HELD _, _[ALLOY, LTD.500 West Madison Street, 34 th Floor
Chicago, Illinois 60661
(VIA FEDE_a, Exl'm_ss)
Lyle Vander Schaaf, Esq.BRINKS HOFER GILSON & LIONESuite 675
1850 K Street, NW
Washington, DC 20006-2219
(VIA FEDERAL EXPRESS)
ADDUCI,_ASTRIXNI &SCHAUMB_RG, L.L.P.
1200 Seventeenth Street, N.W., Fifth Floor
Washington, DC 20036
TIAN 100010-2
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142