Ruling Request; U.S. International Trade Commission; Limited Exclusion Order; Investigation No. 337-TA-849; Certain Rubber Resins and Processes for Manufacturing Same

HQ H261150 September 3, 2015 OT:RR:BSTC:IPR H261150 RES CATEGORY: 19 U.S.C. §1337; Unfair Competition Mr. Richard M. Belanger Sidley Austin, LLP 1501 K Street NW Washington, DC 20005 RE: Ruling Request; U.S. International Trade Commission; Limited Exclusion Order; Investigation No. 337-TA-849; Certain Rubber Resins and Processes for Manufacturing Same Dear Mr. Belanger: This is in reply to your letter dated January 13, 2015, on behalf of Sino Legend (Zhangjiagang) Chemical Co., Ltd., Sino Legend Holding Group, Inc., and Sino Legend Holding Group, Ltd. (collectively “Sino Legend”), in which you requested a ruling, pursuant to 19 C.F.R. Part 177, as to whether four novolak resins, designated as SL-1801A, SL-1801A LFP, SL-1802A, and SL-1802A LFP (collectively “the redesigned products”), that are produced through a new process that was not at issue before the U.S. International Trade Commission (“ITC” or “Commission”) in the above referenced investigation are subject to exclusion from entry for consumption into the United States. We regret the delay in responding. Your request also contained a substantial amount of information regarding the manufacturing processes of Sino Legend’s redesigned products, for which you request confidential treatment under 19 C.F.R. §177.2(b)(7). On January 28, 2015, you submitted a version of your ruling request which redacted the above identified information. You have advised that the redacted confidential information compromises commercial information concerning Sino Legend’s manufacturing processes for novolak resins that was not disclosed during the ITC investigation and compromises commercial information of both Sino Legend’s and the Complainant’s manufacturing processes for novolak resins that was disclosed during the ITC investigation but subsequently redacted by the ITC in both the Administrative Law Judge’s Final Initial Determination and the Commission’s Opinion. You assert that the disclosure of certain information relative to this matter could potentially cause substantial harm to the competitive position of the parties involved.  Based on our review of the matter we have concluded that the information in question is eligible for confidential treatment under 19 C.F.R. § 103.12; accordingly, we have granted the request for confidentiality.  Appropriate steps will therefore be taken to ensure that the information remains confidential and, to this end, the bracketed portions of this decision will be redacted from any published versions of this decision.  A public version of this decision is enclosed for your files. However, please note that the provisions of the Freedom of Information Act (FOIA) (5 U.S.C. § 552), the Trade Secrets Act (18 U.S.C. § 1905) and/or the Privacy Act of 1974 (5 U.S.C. § 552a) will prevail in any conflict that may arise regarding the confidentiality and disclosure of information.  Accordingly, any information submitted in connection with this matter may be subject to disclosure, if requested, if it is subsequently determined that the information is not protected by the Trade Secrets Act, the Privacy Act or an exemption of the FOIA. FACTS: The Commission instituted Investigation No. 337-TA-849 on June 26, 2012, based on a complaint filed by SI Group, Inc. (“SI Group”). See 77 Fed. Reg. 38083 (June 26, 2012). SI Group alleged violations of section 337 of the Tariff Act of 1930 (19 U.S.C. §1337) by reason of misappropriation of trade secrets. SI group claimed that Sino Legend misappropriated its trade secret process for the manufacture of tackifier/rubber resins, also called “novolak resins,” from PTOP (p-tert-octyl phenol). See Commission Opinion at 4. These novolak resins are used in tire manufacturing. Id. at 6. The manufacturing process for the tackier resins involves two steps: an alkylation reaction followed by a condensation reaction. Id. SI asserted that there were seven trade secrets in the alkylation step and ten trade secrets in the condensation step. Id. at 8. SI also claimed that the overall combination of the individual seventeen trade secrets in both steps was itself a protectable trade secret. Id. SI alleged the following trade secrets used in the alkylation and condensation steps: Alkylation Steps [ ] (See CO at 10-13); The use of [ ] in the Alkylation Reaction (Id. at 14); The use of [ ] (Id. at 15); The use of [ ] (Id. at 16-17); [ ] (Id. at 17-18); [ ] of the Alkylation Reaction (Id. at 18); [ ] (Id. at 18-20); Condensation Steps Use of [ ] (Id. at 20-24); [ ] (Id. at 24-25); [ ] (Id. at 25-27) Use of [ ] (Id. at 27-28); [ ] (Id. at 28-30); [ ] (Id. at 30-32); [ ] (Id. at 32-35); ] (Id. at 35-36); [ ] (Id. at 36-37); [ ] (Id. at 37-40).] On June 17, 2013, the Administrative Law Judge (“ALJ”) issued his final initial determination (“ID”), finding a violation of Section 337, specifically the misappropriation of trade secrets and injury to a domestic industry as a result thereof. See ID at 575-576 (public version, August 16, 2013). The ALJ determined that steps (1), (2), (4), (7), (8), (10), (12), (13), (14), and (17) are protectable trade secrets along with the combination itself of all seventeen steps. See ID at 714-715. The ALJ found that the respondent misappropriated these trade secrets in the manufacturing of its SL-1801, SL-1801 LFP, SL-1802, and SL-1802 LFP rubber resins (collectively “the legacy products”). Id. On September 13, 2013, the Commission determined to review the ID in full. See 78 Fed. Reg. 56734-36 (September 13, 2013). In the Commission Opinion (“CO”), issued on January 15, 2014, the Commission affirmed the ID in part and reversed in part. See CO at 3 (public version, February 26, 2014). The Commission affirmed the ALJ’s findings that steps (1), (2), (4), (7), and (10) were protectable trade secrets and that the overall process was itself a trade secret. See CO at 12, 14, 17, 20, 26, and 41. The Commission reversed the ALJ’s findings that steps (8), (12), (13), (14), and (17) were protectable trade secrets. Id. at 24, 29, 31, 34, and 40. The Commission affirmed the ALJ’s determination that Sino Legend’s SL-1801 and SL-1802 rubber resins misappropriated the step (1) trade secret because the [ ]. See CO at 43-46. However, the Commission reversed the ALJ’s findings that Sino Legend’s SL-1801 LFP and SL-1802 LFP (“the LFP products”) rubber resins misappropriated the step (1) trade secret because these resins used [ ]. Id. at 46. The Commission rejected the ALJ’s finding that the LFP products’ [ ]. Id. The Commission held that because the Complainant narrowly defined the trade secret as a [ ] in view of [ ] ranges know within the art, that it would be inconsistent for the Complainant to attempt to capture [ ] within other ranges the Complainant disclaimed in defining the [ ] to be protectable as a trade secret. Id. The Commission affirmed the ALJ’s determination that Sino Legend’s legacy products misappropriated the trade secrets for the manufacturing process steps (2), (4), (7), and (10). Id. at 46-48, 50, and 52. Also, the Commission affirmed the ALJ’s findings that the SL-1801 and SL-1802 legacy products misappropriated the trade secret in the overall process, however the Commission reversed the ALJ’s findings that the LFP legacy products misappropriated the overall process trade secret because these legacy products did not practice the step (1) trade secret. Id at 55. On January 15, 2014 the ITC issued the LEO, directing that rubber resins manufactured using the trade secrets at issue by, for, or on behalf of . . . certain respondents in Investigation 337-TA-849 (including Sino Legend (Zhangjiagang) Chemical Co., Ltd., Sino Legend Holding Group, Inc., and Sino Legend Holding Group, Ltd.), or any of their affiliated companies, parents, subsidiaries, licensees, contractors, or other related business entities, or their successors or assigns, are excluded from entry for consumption into the United States, entry for consumption from a foreign-trade zone, or withdrawal from a warehouse for consumption, for a period of ten years from the effective date of the order, except under license of the owner of the above identified trade secrets, or as provided by law. See 79 Fed. Reg. 3624-25. The trade secrets at issue in this protest and forming the basis of the LEO are the combination of all seventeen steps of the manufacturing process and the following individual steps: The use of [ ]. See CO at 10-13. The use of [ ] in the Alkylation Reaction. Id. at 14. The process of [ ]. Id. at 16. The [ ], which has the following specifications: [ ]. Id. at 18-20. [ ]. Id. at 25-27. You asserted that the manufacturing process for the redesigned products at issue, SL-1801A, SL-1801A LFP, SL-1802A, and SL-1802A LFP, does not use any of the protected trade secrets identified in Inv. No. 337-TA-849. See Ruling Request, dated January 13, 2015, pp.13-24. Specifically, you state that Sino Legend altered the manufacturing process for the trade secret steps and currently the redesigned products are made using the following changed steps: [ ] for the SL-1801A and SL-1802A products and [ ] for the SL-1801A LFP and SL-1802A LFP products. [ ] is used as the [ ] rather than [ ]. [ ] are no longer used. [ ] has been changed. The [ ]. In addition, you claim that because the redesigned products do not use any of the trade secret steps these products do not misappropriate the trade secret for the combination of all the manufacturing steps. You have presented batch cards, records of the manufacturing process of a particular batch of compounds/chemicals, as evidence regarding Sino Legend’s new manufacturing process, and asserted that the redesigned products are not subject to exclusion from entry for consumption into the United States. Id., at p. 24 ISSUE: Whether the redesigned products are subject to exclusion from entry for consumption into the United States. LAW AND ANALYSIS: A trade secret consists of any formula, process, pattern, device or compilation of information used by an entity (business, corporation, etc.) that gives the entity an opportunity to obtain an advantage over competitors who do not know or use the trade secret. Kewanee Oil Co. v. Bicron Corp. Et. Al., 416 U.S. 470 (1974) (citing Restatement of Torts § 757, comment b (1939)); See also, Uniform Trade Secrets Act (“USTA”) § 1(4). A misappropriation of a trade secret(s) occurs when another entity not privy to the trade secret gains the knowledge of it without the trade secret owner’s consent through improper means, such as theft, wiretapping, aerial reconnaissance, or improper disclosure from a former employee or licensee of the trade secret owner. Kewanee Oil at 475; USTA § 1(2). However, misappropriation does not occur if the trade secret is “discovered by fair and honest means, such as by independent invention, accidental disclosure, or by [ ] reverse engineering”. Kewanee Oil at 475. Misappropriation of trade secrets is considered a method of unfair competition. TianRui Group Co. Ltd., v. ITC, 661 F.3d 1322, 1327 (Fed. Cir. 2011). Because there is no explicit federal statute governing trade secret law, a trade secret claim in federal courts would be governed by the state trade secret law of the appropriate state in which the misappropriation occurred. BBA Nonwovens Simpsonville, INC., v. Superior Nonwovens, LLC, 303 F.3d 1332, 1337 (Fed. Cir. 2002). However, even though there is presently no federal statute governing trade secret misappropriation, the International Trade Commission (“Commission”) has long interpreted § 337 to apply to trade secret misappropriation because § 337 authorizes the Commission to exclude articles from entry into the United States when the Commission has found “[u]nfair methods of competition [or] unfair acts in the importation of [those] articles,” See 19 U.S.C. § 1337(a)(1)(A),. TianRui at 1326. In TianRui, the U.S. Court of Appeals for the Federal Circuit (“CAFC”) held that “a single federal standard, rather than the law of a particular state, should determine what constitutes a misappropriation of trade secrets sufficient to establish ‘unfair methods of competition’ under section 337.” See CO at 10 (citing TianRui, 661 F.3d, at 1327). Sources of applicable law include the USTA and federal common law. Id. Paragraph (a)(1)(A) of Section 337, which governs the importation of articles derived from federal common law forms of unfair competition, such as misappropriation of trade secrets, provides in pertinent part the following: (a) Unfair methods of competition declared unlawful. (1) Subject to paragraph (2), the following are unlawful, and when found by the Commission to exist shall be dealt with, in addition to any other provision of law, as provided in this section: (A) Unfair methods of competition and unfair acts in the importation of articles (other than articles provided for in subparagraphs (B), (C), (D), and (E)) into the United States, or in the sale of such articles by the owner, importer, or consignee, the threat or effect of which is-- (i) to destroy or substantially injure an industry in the United States; (ii) to prevent the establishment of such an industry; or (iii) to restrain or monopolize trade and commerce in the United States. 19 U.S.C. § 1337(a)(1)(A). In light of this section and the federal common law regarding trade secrets, the elements of misappropriation of trade secrets in a section 337 investigation are as follows: (1) the existence of a process that is protectable as a trade secret (e.g., that is (a) of economic value, (b) not generally known or readily ascertainable, and (c) that the complainant has taken reasonable precautions to maintain its secrecy); (2) that the complainant is the owner of the trade secret; (3) that the complainant disclosed the trade secret to respondent while in a confidential relationship or that the respondent wrongfully took the trade secret by unfair means; (4) the demonstration of a domestic industry affect by the misappropriation; and (5) that the respondent has used or disclosed the trade secret causing actual substantial injury to the complainant. Certain Sausage Casings, Inv. No. 337-TA-148/169, Initial Determination (July 31, 1984) (nonreviewed in pertinent part); USTA, §1(4). If the ITC finds a violation of § 1337(a)(1)(A) for the misappropriation of a trade secret, then § 1337(d) provides the Commission authority to direct the exclusion from entry of articles found to be produced using the misappropriated trade secrets. Moreover, when the Commission determines that there has been a violation of section 337, as amended, it may issue two types of exclusion orders: a limited exclusion order and/or a general exclusion order. See Fuji Photo Film Co., Ltd. v. U.S. Int’l Trade Comm’n, 474 F.3d 1281, 1286 (Fed. Cir. 2007). Both types of orders direct CBP to bar infringing products from entering the country. See Yingbin-Nature (Guangdong) Wood Indus. Co. v. U.S. Int’l Trade Comm’n, 535 F.3d 1322, 1330 (Fed. Cir. 2008). The issuance of a limited exclusion order by the ITC binds named parties and shifts to would-be importers, “as a condition of entry, the burden of establishing noninfringement.” Hyundai Electronics Industries Co. v. U.S. Int’l Trade Comm’n, 899 F.2d 1204, 1210 (Fed. Cir. 1990). Accordingly, because Sino Legend is a named party in the ‘849 LEO, the burden is on Sino Legend to establish that the four resins designated as SL-1801A, SL-1801A LFP, SL-1802A, and SL-1802A LFP, do not use the protected trade secrets. Each of the six trade secrets for the redesigned products are discussed in turn. Step (1) Trade Secret: [ ] In your ruling request, you assert that the instant SL-1801A LFP and SL-1802A LFP redesigned products use the same [ ] as the SL-1801 LFP and SL-1802 LFP legacy products under consideration in Inv. No. 337-TA-849, namely [ ]. See Ruling Request, at 14. You also assert that the instant SL-1801A and SL-1802A redesigned products no longer use the [ ], which was found to be a protectable trade secret, but instead use a [ ]. See Ruling Request, at 15. As evidence, you have submitted batch cards purporting to describe the specific manufacturing process used for the redesigned products. See Ruling Request, Ex. A and B. The amount of [ ] used in the manufacturing process in the Exhibit A batch card was [ ] and the amount of [ ] used was [ ] (these are the amounts listed under the [“ ”] column). The [ ] of [ ] is [ ] and the [ ] of [ ] is [ ]. Based on this data, the [ ] is calculated to be [ ], which supports Sino Legend’s claim that it uses a different [ ] in this step of the manufacturing process as Sino Legend’s new [ ] has a greater than 5% difference from the protectable secret [ ]. After a review of the arguments and evidence submitted, we find that the record supports your assertion that the redesigned products are not manufactured using the protectable trade secret identified above. With regard to the SL-1801A LFP and SL-1802A LFP products, the Commission has already found that the use of the [ ] instead of the [ ] is not considered a misappropriation of the trade secret. With regard to the SL-1801A and SL-1802A products, under the premise that other [ ] besides [ ], such as the [ ], that are within the range of values known within the art are not protectable as trade secrets, the Respondent’s use of the [ ] would be outside the scope of the protectable trade secret value for the [ ]. Accordingly, with respect to the SL-1801A and SL-1802A products we find that the use of a [ ] instead of the [ ] is not considered a misappropriation of the trade secret. Step (2) Trade Secret: [ ] In your ruling request, you assert that rather than using [ ], your new process [ ] in the alkylation reactor and uses the ] to determine [ ]. See Ruling Request, at 16. As evidence, you have submitted batch cards purporting to describe the specific manufacturing process used for the redesigned products. See Ruling Request, Ex. B. In the Exhibit B batch card, in the section labeled [ ] there are instructions advising the plant engineers [ ]. In addition, the results of the [ ] related to this batch card shows the reaction was [ ]. This information on the Exhibit B batch card supports Sino Legend’s claim that it is not using [ ]. After a review of the arguments and evidence submitted we find that the record supports your assertion that the redesigned products are not manufactured using the protectable trade secret identified above. The batch cards submitted show that your process [ ]. Step (4) Trade Secret: [ ] In your ruling request, you assert that your new process no longer uses [ ]. As evidence, you submit batch cards for both the redesigned products at issue and the legacy products considered at the ITC during Inv. No. 337-TA-849. See Ruling Request, Ex. A, B, H, and I. The Exhibit I batch card, which represents the manufacturing process of the legacy products using the misappropriated trade secrets, shows the use of [ ] under the [ ] section. The Exhibit A batch card, which represents the redesigned process, does not indicate that any [ ] are being used in the [ ] production of the manufacturing process as it shows that only [ ] is being used as a [ ] and that there is no listing for any [ ] used. After a review of the arguments and evidence submitted, we find that the record supports your assertion that the redesigned products are not manufactured using the protectable trade secret identified above. The legacy products found to misappropriate the trade secret had batch cards that listed [ ]. The batch cards for the redesigned products do not list this [ ]. Step (7) Trade Secret: [ ] In your ruling request, you assert that your redesigned [ ] has [ ]. See Ruling Request, at 17-19, Ex. D. The [ ] number in the batch cards for the redesigned products in Exhibits A and B list the [ ] under the [ ] section. This differs from the [ ] number listed in the batch card for the legacy products in Exhibit I, which was [ ], that was determined to misappropriate the Complainant’s trade secret [ ]. Thus, this demonstrates that Sino Legend is using a different [ ] that is not protectable by trade secret. After a review of the arguments and evidence submitted (which include the [ ]), we find that the record supports your assertion that the redesigned products are not manufactured using the protectable trade secret identified above. The design of your [ ] is substantially different from that of the protected design. Step (10) Trade Secret: [ ] In your ruling request, you assert that your new process uses a [ ] and that the [ ]. This value is equivalent to a [ ]. See Ruling Request, at 21-22, Exhibit E. On the batch card labeled as Exhibit E, the amount of [ ], while the amount of the [ ] and the amount of the other [ ]. Based on these amounts, the Exhibit E batch card shows that the [ ], while the [ ]. After a review of the arguments and evidence submitted, we find that the record supports your assertion that the redesigned products are not manufactured using the protectable trade secret identified above. As you note in your request, the ITC found that the [ ] is significantly different from [ ]. See CO, at 52. Based on this finding, we agree that the [ ] is likewise significantly different, such that it cannot be said that the above identified trade secret has been misappropriated. Overall Process Flow Trade Secret You assert in the ruling request that your new manufacturing process does not use any of the five previously discussed protectable trade secrets during the manufacture of the redesigned products. See Ruling Request, at 22-24. You also note that that the Commission found that the SL-1801 LFP and SL-1802 LFP legacy products did not misappropriate the overall process trade secret because they were not found to misappropriate the Step (1) trade secret, as discussed above. See CO, at 55. After a review of the arguments and evidence submitted, we find that the record supports your assertion that the redesigned products are not manufactured using the overall process protectable trade secret identified above. As discussed previously, the redesigned products do not use any of the five protectable manufacturing process steps trade secrets identified above. Given that the Commission found that the SL-1801 LFP and SL-1802 LFP legacy products did not misappropriate the overall process trade secret when just one of the protectable steps was not practiced, it is CBP’s position that the redesigned products likewise do not misappropriate the overall process flow trade secret. HOLDING: As discussed above, the four novolak resins, designated as SL-1801A, SL-1801A LFP, SL-1802A, and SL-1802A LFP, to be manufactured and imported by Sino Legend, not accused and not at issue before the ITC in the above referenced LEO, do not misappropriate the six protectable trade secrets identified by the Commission. As such, the instant products are not subject to exclusion from entry for consumption into the United States, entry for consumption from a foreign-trade zone, or withdrawal from a warehouse for consumption. This decision is limited to the specific facts set forth herein. If Sino Legend manufactures or imports novolak resins whose manufacturing process differs from the embodiment described above, or if future importations vary from the facts stipulated to herein, this decision shall not be binding on CBP as provided for in 19 C.F.R. §§177.2(b)(1), (2), and (4), and §§ 177.9(b)(1) and (2). Sincerely, Charles R. Steuart, Chief Intellectual Property Rights Branch