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Posted By Elisabeth Glover on January 23, 2017

Supreme Court Declines to Hear Chinese Trade Secret Theft Case

Law 360 thumb2.pngThe U.S. Supreme Court recently declined to hear (so, in effect, upheld) an earlier federal court decision that bans Chinese company Sino Legend Chemical Co. Ltd. from importing their products into the United States for 10 years. (Click here to read the Law360 summary of the case.)

This is an important legal victory in the effort to protect the theft of intellectual property (IP) and it could have ramifications for U.S. companies that are victimized by software piracy, particularly by foreign companies that export products to the U.S. that were developed with unauthorized software.

Here’s the background. New York-based SI Group Inc. sued Sino Legend in China for misappropriation of trade secrets related to the synthesizing of resins used to manufacture tires. Sino Legend had poached an employee working in a Chinese subsidiary of SI Group to steal the company’s propriety information. When the Chinese court ruled that Sino Legend had not misappropriated SI’s trade secrets, the company lodged a complaint with the U.S. International Trade Commission (ITC), who instituted an investigation in 2012 under Section 337(a)(1)(A), which prohibits “unfair methods of competition and unfair acts in the importation of articles.”

Sino Legend argued that the complaint was not a violation of Section 337(a)(1)(A) because that section does not apply to trade secret misappropriation that occurs entirely outside the United States. The presiding judge dismissed Sino Legend’s arguments, noting that the federal circuit’s TianRui decision stands for the proposition that the ITC can exclude imported products from the United States based on trade secret misappropriation that occurred outside of the United States and accordingly found a violation of Section 337.

Sino Legend then took the case to the federal circuit court, where it was unsuccessful in arguing that the ITC did not have the authority to adjudicate a violation of a trade secret when the conduct occurred outside the U.S.  Now Sino Legend’s appeal to the Supreme Court has been denied, paving the way for the ITC to have much broader and far reaching powers.

This is great news for all of us in the U.S. fighting the uphill battle to stop the theft of our IP by other countries, most notably China. The Supreme Court, in declining to hear the case, in effect has said that the ITC has the power to prohibit international companies from shipping products to the U.S. that have been made using trade secrets stolen from the U.S., and, further, that it doesn’t matter if the misappropriation occurred entirely outside the U.S.

Several things should be noted in terms of software piracy. We at Cylynt believe this ruling could also apply to stolen software and/or IP, and even if the unlicensed usage of software takes place in another country, the end products designed using the stolen software, for instance cell phones and other electronics, can be banned from sale in the U.S. Especially encouraging is that the ban on Sino Legend is broad in scope and long in duration (10 years)—not just an insignificant slap on the hand 

There has never been a better time to deploy Cylynt technologies for identifying misuse of software and detailed data gathering for evidence of IP misuse. This is an important decision since the Chinese courts are much more inclined to rule in favor of their local companies. Our customers may be able to use the ITC as well as the U.S. court systems to protect their IP from further theft and possibly recover lost revenues from software piracy. 

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Elisabeth Glover
Marketing Communications

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