Category Archives: Trade Secrets

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Of Trade Secrets, Section 337, AUCL Reform and Evidence Production

When faced with trade secret misappropriation, the United States International Trade Commission can provide a forum for U.S. companies faced with unfair competition resulting from the misappropriation, even if the “theft” occurs entirely in China and/or a misappropriated process is used in China to manufacture a product imported into the United States.  In Certain Cast Steel Railway Wheels, Certain Processes for Manufacturing Or Relating To Same and Certain Products Containing Same, 337-TA-655, Amsted Industries Inc. which licensed certain confidential manufacturing technology to two Chinese companies, Datong ABC Castings Co. (DACC), and Xinyang Amsted Tonghe Wheels Company Limited (Tonghe), claimed the respondent, TianRui Group Co. Ltd, had poached employees from DACC and Tonghe and stolen from them materials and other proprietary information sufficient to establish an identical, competing manufacturing line.  The ITC found a violation of Section 337 and issued a ten-year exclusion order.  On appeal of this landmark case, the U.S. Court of Appeals for the Federal Circuit held that the ITC has jurisdiction to reach trade secret misappropriation that occurs entirely abroad, so long as there is a nexus between the misappropriated trade secrets and the imported product.  Tianrui Group Co. v. ITC, 661 F.3d 1322, 1337 (Fed. Cir. 2011).  Interestingly, in that instance, the Chinese dometic authorities aligned with the United States.  Because railway wheels must be certified for use in China (as is the case in the U.S.), the Chinese Ministry of Railways declined to certify the Tianrui wheels until the U.S. matter was concluded.  The willingness of the Ministry of Railways to decertify Tianrui’s wheels while an ITC action was pending stands as an important contra-factual that suggests the relationship between trade secret theft in China and Chinese domestic industrial policy may be overstated.

More recently, in Certain Rubber Resins and Processes for Manufacturing Same, 337-TA-849, the ITC found a violation of Section 337 based on trade secret misappropriation that occurred entirely in China.  In that case, the Chinese authorities had ruled that there was no trade secret misappropriation in both civil and criminal proceedings.  In Sino Legend Chemical Co. v. International Trade Commission, 623 F. App’x 1016 (Fed. Cir. 2015), the respondents sought to overturn Tianrui, arguing that the ITC does not have jurisdiction to reach misappropriation taking place entirely abroad and that the ITC should have deferred to the Chinese authorities as a matter of comity.  In a nonprecedential judgment, the Federal Circuit affirmed the Commission’s finding.  On September 30, 2016, the respondent in the ITC case, Sino Legend, filed a petition for certiorari asking the U.S. Supreme Court to overrule TianRui, arguing that Section 337(a)(1)(A) contains no clear indication that it should apply extraterritorially and barring the importation of goods made using trade secrets misappropriated in China constitutes the impermissible regulation of conduct occurring overseas.  As an indication of how important this matter is to the Chinese government, in a rare filing, the Ministry of Commerce submitted an amicus brief supporting certiorari.  On January 9, 2017, the Supreme Court denied the certiorari petition.  Thus, U.S.-based companies can continue to turn to the ITC as a viable alternative for relief from trade secret misappropriation taking place in China.  Equally problematic, however, was the willingness of China’s judiciary to misconstrue the 337 decision as a victory for the Chinese defendants and to deem a lower court case as a model case while a related case was still pending on appeal to the court.  This case has also been an important counter-contra-factual indication regarding the relationship between trade secret theft in China and independence of the cour

How does this relate to legislative reform of the Anti-Unfair Competition Law in China?

China is currently revising its AntiUnfair Competition Law, which is the foundational law for trade secrets.  An important first step in addressing trade secret theft in China was the recognition that trade secret protection is a proper subject of the civil code in recent amendments to the civil code; i.e., that is not simply a matter of market regulation but of theft of a private property right.  The inclusion of trade secrets in the revisions to China’s general principles of the civil code was advocated in this blog, and also noted as appearing in an earlier draft.  The SPC, including Madame Tao Kaiyuan, were also involved in providing expert opinions on the draft.  The NPC comments on  the recent proposed revisions of the AUCL specifically calls out the important role of the SPC in revising the most recent draft of the AUCL, and note that civil compensation should assume a primary role in enforcing the anti-unfair competition law generally (善民事赔偿责任优先、与行政处罚并行的法律责任体系。不正当竞争违法行为首先损害了其他经营者的合法权益，需要民事赔偿优先，调动其他经营者制止不正当竞争行为的积极性。)  The primacy of civil enforcement is also found in Article 20 of the draft law itself with a clarification that a business operator who violates the law shall “bear civil liability” and that civil liability shall take priority over fines (Article 30).  I believe these efforts reflect some of the momentum generated by the SPC’s highly useful report, focusing on civil enforcement of trade secret.  Also of note is that at about the same time as that report, the US China Business Council outlined a number of the evidentiary problems in trade secret cases in its proposals for Chinese trade secret reform (2013), including burdensome notarization procedures, procedures which risk further disclosure of confidential information, difficulties in cooperation with the police, etc

The inclusion of trade secrets as a civil right was accomplished with civil code revisions adopted on March 15, 2017, with an implementation date of October 1, 2017.  (中华人民共和国民法总则)。  Article 63(5) includes trade secrets as a subject of intellectual property rights protection:

第一百二十三条　民事主体依法享有知识产权。知识产权是权利人依法就下列客体享有的专有的权利：    （一）作品；    （二）发明、实用新型、外观设计；    （三）商标；    （四）地理标志；    （五）商业秘密；    （六）集成电路布图设计；    （七）植物新品种；    （八）法律规定的其他客体。

Section 337 and the New Trade Secret Regime?

How do these reforms in trade secret litigation interact with US Section 337 procedures? Issues involving production of evidence between the US and China can be at the heart of many IP cases, but are especially critical in trade secret cases.   While some reforms have already been made in China, such as availability of preliminary evidence preservation measures in trade secret cases, the removal in the recent draft of the AUCL of a provision in an earlier draft that would have provided for a modest burden of proof reversal in trade secret matters is also troubling:

“Where the rights holders of trade secrets can prove that information used by others is substantially the same as their trade secrets and that those others had the capacity to obtain their trade secrets, those others shall bear the burden of proof to show that the information they used came from lawful sources.” (proposed Art. 22)

As the coauthor of this blog, Jay Reiziss, points out in his attached presentation to my recent class at Fordham, difficulties in gathering evidence have often been critical to use of Section 337 proceedings.  US Administrative Law Judges have granted motions to use the Hague Convention, such as where a foreign government formally weighs in (Switzerland indicated that it would cooperate with such a request (Certain Sintered Rare Earth Magnets, Inv. No. 337-TA855, Order No. 8). However other cases have determined that Hague Convention procedures would not be timely due to compressed ITC schedules (Certain Hardware Logic Emulation Systems, Inv. No. 337TA-383, Order No. 65).  Because of the threat of adverse inferences, there have also been several instances where Chinese respondents have reluctantly permitted plant tours to accommodate discovery requests (Certain R-134a Coolant, Inv. No. 337-TA-623.  FlexsysAmerica v. KumhoTire U.S.A., 5:05-cv-156 (N.D. Ohio)  Issues involving obtaining timely production of evidence have also appeared in other cases, notably the Gucci/Tiffany cases in the Second Circuit.

Even if the AUCL may not provide enough support for evidence production in China, the SPC has identified several bottlenecks in cross-border adjudication of disputes, including “hearing cross-border cases–service of process to overseas parties; obtaining evidence crossborder; determining facts that have occurred abroad; determining and applying foreign law”, which suggest that future cooperation with US courts may also improve.   Hopefully, as China improves its mechanisms to obtain foreign evidence and if it takes more proactive stances towards cross border cases, towards allowing production of evidence China, and as it improves its civil system, foreigners will be less reluctant to bring IP cases, especially trade secret cases, in China. In the meantime, it appears that the ITC and U.S. civil actions will continue to play a very important role in driving evidence based decisions on trade secret infringement involving China

 

Coauthored by Mark A. Cohen and Jay Reiziss.  This blog represents the authors’ personal views only and should not be attributable to any client, employer or any third party.

 

 

 

 

 

 

 

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Should the NPC also consider Criminal Copyright Reform when it considers Copyright Reform?

Lamacchia.JPG

At this month’s National People’s Congress, an NPC spokesman noted that this year the NPC intends to address reform of the copyright law, which has been long delayed. However, reform of the substantive copyright law will not typically address the need to reform the criminal copyright law and to address the relationship between civil and criminal copyright law. This point was raised in the Weixin platform Zhichanli （知产力）, which addressed the key issues of criminal copyright law reform in a lively “cartoon” format (see above):

The four issues from the perspectives of the author of that blog are:

1.       Article 217 of the criminal code, mandates having a “profit motivation” in order for criminality to attach.Should the “profit motivation” requirement be removed from the criminal code?

2.       Whether to criminalize the Internet related right of “communication over information networks”?

3.       How to address secondary and principal liability of internet platforms?

4.       Three separate specific issues, including:

a)       How to criminalize destruction of technological protection measures?

b)      How to criminalize commercial scale use of piratical software?

c)       What are the thresholds to deal with online criminal enforcement?

In my view, these are all important issues, which should be considered in the context of copyright reform.    Many of these  issues were raised in DS/362, the WTO enforcement case which the United States brought against China.    Of particular note was that the United States raised the history of  amending US laws to address willful copyright infringement that caused large scale harm without necessarily causing commercial gain (the LaMacchia case, in the cartoon above).  In addition, the United States also recognized that thresholds based on the numbers of copies would not capture the harm caused by technological changes which permitted large digital quantities to be distributed on line or in compressed formats.   One of the current thresholds involves 500 “flat articles”  ( 500 张 ) (typically used for CD’s or flat pieces of paper), which the WTO panel called “copies, for the sake of simplicity” and is an awkward determinant for infringement in rapidly moving technologies.

Also of note is that criminal IP enforcement has become more important in China. This was brought to my attention by a Chinese judge who mentioned that while China opposed the WTO case, it was now widely recognized that criminal IP is an important part of an IP enforcement system. In a sense, the US may have lost the 2007 battle over criminal IP at the WTO, but clearly won the war. The data bears this out. When the WTO was filed against China, there were only about 904 criminal IP  infringement cases in China (2007).   In 2013, by comparison there were 7,804 infringement cases – an increase of about 8 times, not including increases in other provisions of the criminal code that also can address IP infringement, such as crimes involving illegal business operations or fake and shoddy goods.

While China recognizes that criminal IP is enforcement it an important part of its enforcement system,  an equally important question concerns the role of the relatively small criminal IP enforcement system in light of China’s civil, administrative and customs enforcement (see chart below).  In addition to the increasing number of criminal IP prosecutions,  the increasing numbers of referrals from China’s administrative copyright enforcement to criminal copyright enforcement is an encouraging trend in this regard.  An even more encouraging sign would be consideration by the NPC of criminal copyright law reform at the same time as it considers substantive copyright law reform.  As criminal law reform goes through different procedures at the NPC, working on both issues simultaneously may entail some coordination, but would help ensure that any changes to China’s copyright regime is comprehensive and would set a good precedent for other IP legislative reforms coming up, such as in reform of the trade secret regime in the Antiunfair Competition Law.

 

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Stealing IP from the Steel Sector?

Michael Komesaroff, a Sinologist and mining engineer based in Australia, has published an interesting article on the website of the Center for Strategic and International Studies on “Make the Foreign Serve China: How Foreign Science and Technology Helped China Dominate Global Metallurgical Industries.”

According to Mr. Komesaroff, China is now the world leader in metallurgical technologies as it has the largest and technically most efficient plants in the world. This was achieved through a number of strategies commencing with the purchase of obsolete western plants and extending to reverse engineering including the infringement of IP rights.  As Michael notes at p. 11, Chinese practices “do not discriminate in their lack of respect for intellectual property; Chinese companies will infringe the proprietary technology of national champions as readily as they do to foreign competitors and the absence of an enforced intellectual property law accelerates diffusion of any new technology.”  Furthermore, “with an endless supply of smart engineers and scientists, why pay for technology, something that you cannot touch, see, taste, or smell.”  Michael’s points are especially interesting because they link innovation with  capital intensive industries and state support, China’s past practices of acquiring obsolete Western plants and China’s  IP practices and policies.

IP issues in the steel sector have also become more of a focus point with the institution in May of 2016 of a 337 litigation by US Steel against several Chinese steel companies, which alleges that Chinese steel companies have engaged in the “the misappropriation and use of U.S. Steel’s trade secrets” as well as “the false designation of origin or manufacturer, in violation of the Lanham Act, 15 U.S.C. § 1125(a).”  This is not the first such trade secret related action involving steel and China.  Two years prior to this 337 action, several PLA agents were indicted in a US court in Pittsburgh for cyber-espionage related activities, including trade secret theft, in several industries.  US Steel and other iron and steel industries, as well as Alcoa, were alleged to be victims of these efforts.

There have also been numerous trade-related concerns expressed concerning China’s metallurgical industries over the decades since 1979, including a “Section 406” investigation that I was briefly involved in before China’s WTO accession (1987), that involved tungsten, and, more recently, trade discussions on Chinese excess capacity in the steel industry.  A WTO case had also been brought by the United States against China regarding its export restrictions involving rare earth metals, including  tungsten and molybdenum in 2012 .  While the metallurgical industries have been a trade-sensitive area for some time, it now appears that IP-related issues have become of significant concern.

 

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China IP and the New Trade Agenda

Tradeagenndawordcloud

Last week, the Trump administration announced its Trade Policy Agenda, to criticism and support.  As the above word cloud suggests, the focus is on US interests, US sovereignty and the US relationship with the WTO, although China (highlighted in yellow above) is certainly also called out.

The policy singles out IP and China in the following ways:

  1. It makes a key objective of the administration’s trade agenda “ensuring that U.S. owners of intellectual property (IP) have a full and fair opportunity to use and profit from their IP.”  The focus on use of IP, a theme of this blog, is welcome.

  2. It continues to focus on “theft of intellectual property” including “unfair competitive behavior by state-owned enterprises…”. Theft of IP has been a theme of the Trump campaign and of an early administration executive order.

  3. It points to China as a cause for much of the US economy’s malaise, noting that “while the current global trading system has been great for China, since the turn of the century it has not generated the same results for the United States.” The report also notes that “a review of what has happened since 2000 – the last full year before China joined the WTO – shows a period of slowed GDP growth, weak employment growth, and sharp net loss of manufacturing employment in the United States. Many factors contribute to this, notably the financial crisis of 2008-2009 and the broad impact of automation.  But the trade data are striking. “

  4. The four priorities of the new trade agenda are US-focused. These include: “ (1) defend U.S. national sovereignty over trade policy; (2) strictly enforce U.S. trade laws; (3) use all possible sources of leverage to encourage other countries to open their markets to U.S. exports of goods and services, and provide adequate and effective protection and enforcement of U.S. intellectual property rights; and (4) negotiate new and better trade deals with countries in key markets around the world.”

The theme of IP theft is also found in the revised report of the Commission on the Theft of Intellectual Property (Feb. 27, 2017) coauthored by the former Director of National Intelligence, Dennis Blair and former Ambassador to China, Jon Huntsman, Jr.  The report notes that “there exists broad bipartisan support for addressing IP theft and safeguarding the competitive advantages of U.S. firms, entrepreneurs, and workers. “  The report further reiterates several prior recommendations, noting that “China, whose industrial output now exceeds that of the United States, remains the world’s principal IP infringer. China is deeply committed to industrial policies that include maximizing the acquisition of foreign technology and information, policies that have contributed to greater IP theft. IP theft by thousands of Chinese actors continues to be rampant, and the United States constantly buys its own and other states’ inventions from Chinese infringers. “

Note that this blog was cited and this author participated in meetings involving the original 2013 report.

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Sino Legend Saga Ends at US Supreme Court

The future ain’t what it used to be. (Yogi Berra)

Earlier this January, 2017, Sino Legend lost its long battle to have an ITC decision excluding its products form the US market reversed by a Supreme Court denial of its cert petition.

As I noted previously, the case presented an unusual set of circumstances, where Chinese courts had found that there had been no trade secret theft occurring in China, the USITC had found that there was trade secret infringement in an exhaustive opinion, China’s Ministry of Commerce sought a rehearing en banc after Sino Legend lost on appeal at the Federal Circuit, and a petition for certiorari was lodged by Sino Legend to the Supreme Court.  Attached are some of the US Supreme Court legal documents, including:  the petition for certiorari  (September 30, 2016); the amicus brief   of the Ministry of Commerce (Nov. 2016); the brief of   USITC in opposition (Dec 6, 2016);  brief of party respondent SI Group in opposition (Dec 6, 2016); reply of petitioners (December 20, 2016); and the Supreme Court’s denial of cert (Jan 9, 2017).

In its cert petition, MofCOM sought a reversal not only of the Sino Legend case but ultimately of the legal principle underlying the Tianrui decision.    The Chinese parties noted that in Sino Legend there a determination that there was no infringement in the case as litigated in China for facts arising in China.  As MofCOM’s brief notes:

[MofCOM] is disappointed by recent actions of the ITC. In wrongly interpreting Section 337 of the Tariff Act to allow the ITC to bar imports into the United States based on alleged actions conducted, and adjudicated, wholly within the borders of China, the ITC has impugned the sovereignty of China and refused to accord the comity expected of a trade partner.

MofCOM’s amicus brief further states:

The displeasure of [MofCOM] with what has unfolded in this, and other, recent ITC cases involving alleged trade secret violations should not go unnoticed. In this matter, there is no dispute that the alleged actions occurred entirely within China, by Chinese citizens, while working at Chinese companies. The alleged acts of misappropriation  were first raised by Complainant’s Chinese subsidiary in China. Both criminal and civil proceedings were instituted in China for these alleged misdeeds. The alleged conduct and actors in question were ultimately vindicated. However, Complainant, unhappy with the failure of proof in China, sought institution of a Section 337 proceeding in the United States based on the same conduct already adjudicated in China. The ITC conducted an investigation, ignored the rulings in China to the contrary, and determined that not only could the ITC bar products based on this conduct, but also that some of Complainant’s justify a limited exclusion order of Petitioner’s product.

The Chinese media had regrettably inaccurately described this case when it was decided at the ITC as a big victory for China involving a finding of no infringement in the US and China; rather a limited exclusion order was granted by the ITC in lieu of a general exclusion order.  China’s Supreme Court had also picked up on this inaccurate description when it regrettably determined that was one of the top 10 IP cases for 2014.  This recognition was troubling also as the complainant in the Sino Legend 337 case had sought a retrial of its case in China, which was denied by China’s Supreme People’s Court two  years later, in 2016.

The differences in final results in the US and Chinese decisions may also be due in part to disparate emphases in trade secret adjudication, with Chinese courts emphasizing similarities of technology between the parties, and the US courts relying more on unfair access to the technology by the alleged misappropriator.  One lesson of this saga is that comity may be more challenging to apply in trade secret litigation, which remains a relatively unharmonized area of IP law among various countries, and which is further weakened by differences in civil procedure including the limited availability of pre-trial discovery in China and many other countries.

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The President-Elect, IP and China

Peter Harter and Gene Quinn wrote an excellent blog recently (November 9, 2016)  entitled “Trump on IP and Patent Reform: What Silicon Valley Doesn’t Understand.”   The authors dispute the contention of some in the tech community that Trump is disinterested in IP because he hasn’t discussed patent reform.  They raise four key points about Trump and IP:

1.      Trump’s campaign website, in the trade section, calls for the U.S. to pursue China and others for stealing American IP.

2.      The GOP campaign platform sets forth that: (a) patents are a private property right like land protected by the Constitution; an (b) theft of IP has become a national security issue.

3.      John G. Trump, the Uncle of Donald Trump, was an MIT Professor who was also an inventor, scientist, and entrepreneur that served his country during World War II inventing new radar technologies.  (Here’s a New Yorker article on his John G. Trump).

4.      Much of Trump’s wealth is tied up in the value of the various Trump trademarks and his own likeness, which he licenses and commercializes.   

As is evident from the above, a significant element of Trump’s stated IP policies to date are tied in with his policies towards China.  In fact, his China policies are also closely related to his trade policies.  On his campaign website, three of his seven points to rebuild the American economy through free trade are China-specific including: (a) instructing the Treasury Secretary to label China as a currency manipulator; (b) Instruct the U.S. Trade Representative to bring trade cases against China, both in this country and at the WTO; and (c) use every lawful presidential power to remedy trade disputes if China does not stop its illegal activities, including its theft of American trade secrets – including the application of tariffs consistent with Section201 and 301 of the Tariff Act of 1974 and Section 232 of the Trade Expansion Act of 1962.  The Trump website also cites the U.S. ITC report on the Theft of American Intellectual Property (2013) for the proposition that improved protection of intellectual property in China would produce more than 2,000,000 more jobs “right here in the United States.” 

Trumps’ economic advisor,  Dr. Peter Navarro, is an economist who teaches at the University of California, Irvine who may have assisted in elevating these IP issues to the attention of the President-elect.  Dr. Navarro has written several books on China-related political and trade issues including “Death by China”, “Crouching Tiger: What’s China’s Militarism Means for the World”, and “The Coming China Wars: Where They Will be Fought and How They Can Be Won.”  Death By China has been made into a documentary.  Parts of the book and movie discuss counterfeiting and piracy, trade secret thefts, substandard and counterfeit products, and technology transfers.

Considering the President-elect’s various businesses, there are, indeed, numerous trademark registrations (live and dead) for Trump-related trademarks  in the United States and in China, including eponymous trademarks Donald J. Trump for various products, Trump University, Trump Shuttle and Trump Tower.  I venture to guess that when he assumes the presidency, Donald J. Trump will be the most prolific developer of brands and owner of trademarks of any US president. 

Sadly — and not unlike other famous figures — Donald Trump may also thereby become the US president with the most trademarks squatted on in China.  Attached here is a list of some of some of the Trump marks on the official website of the State Administration for Industry and Commerce, and of a private website.  Full Disclosure: these websites may not be fully up to date, and it would be very time consuming to determine if each of the trademark applications involving the Trump name were made in good faith.  On first glance, not all of them were applied for by companies that look like Donald Trump’s Chinese name is (唐纳·川普, or Tangna Chuanpu in Romanized Chinese).  As an experiment to see what type of company might be applying for the Trump mark, on the last two pages of this attachment, I also looked up other marks held by one company that owns a Trump Tower mark. This company also owns a Samsonite Mark and a mark that looks like the Venetian Hotel in Las Vegas, an interesting choice of marks for classes 18 (leather goods) and 32 (light beverages). 

It seems like leather companies, such as this company, have been engaged in interesting branding choices in China.  In a wholly unrelated high profile case earlier this year, another leather company won the right to use Apple’s iPhone mark as its brand for leather goods.  In my personal opinion, it would serve China well to clean up its registry of squatted marks to avoid these issues for Presidents-elect, tech companies, and run of the mill entrepreneurs.

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Kong Xiangjun Leaves Supreme People’s Court and Enters Academia

 

Chinese and Western media have reported that former Supreme People’s Court IPR Tribunal Chief Judge Kong Xiangjun and former Deputy Chief Judge of the SPC’s first Circuit Court has been dismissed from his work at the SPC.  Shanghai Jiaotong University, Koguan Law School also announced on September 7 that he would be joining their faculty.  

Kong served nine months on the circuit court, when he was dismissed from that position by the NPC in 2015.   He was dismissed from his SPC positions as both a trial judge and a member of the adjudication committee on September 3, 2016 by at the 23rd meeting of the Standing Committee of the 12th NPC.  There had previously been rumors that Kong was going to leave the court when he served on the SPC’s circuit court, which he denied.

Kong pursued his Ph.D. under Jiang Ping 江平 at the Chinese University of Political Science and Law.  He also served as Deputy Chief Judge under the Administrative Tribunal of the SPC, deputy chief judge of the civil tribunal, and as Deputy Party Secretary in Sichuan in 2014.  Among his many honors, Managing IP nominated him to the 50 Most Influential People in IP in 2010 and 2011.

Owing to his work in the fair trade division of SAIC prior to entering the court, Kong also had an interest in unfair competition and antitrust matters, and was an example of the many of officials in China who worked on unfair competition and IP issues at different stages of their career.  Kong has also authored several books including on contract law, antiunfair competition law, trade secret law, the TRIPS Agreement, and trademark law.