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1 WEST/CRS NO 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. Engler ADDUCI, MASTRIANI g4 SCHAUMBERG LLP th Street NW, 5 th Floor Washington, DC Telephone: (202) Joel M. Freed MCDERMOTT WILL & EMERY LLP th Street NW Washington, DC Telephone: (202) Counsel for Appellants Standard Car Truck Company Inc. and Barber TianRui Railway Supply LLC Continued on next page...

2 r. Ruixue Ran JUN HE LAW OFFICES t, e- China Resources Building 8 Jianguomenbei Avenue Beijing P. R. CHINA Telephone: Counsel for Appellants TianRui Group Company Ltd, TianRui Group Foundry Company Ltd and Barber TianRui Railway Supply LLC u i..'

3 TABLE OF CONTENTS I INTRODUCTION... 1 II. 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 in China... 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 of Acts in the United States... 6 The ID Did Not Find That Any of the Underlying Acts of Alleged Misappropriation Occurred in the United States _ The Domestic Acts Identified by the Commission and Amsted in Their Briefs Do Not Establish Trade Secret Misappropriation Under Illinois Law... 9, The Domestic Acts Alleged by the Commission and Amsted in Their Briefs Are Insufficient to Overcome Morrison's Presumption Against Extraterritorial Application of U.S. Law D The Commission's Interpretation of Section 337 As Granting Unlimited Extraterritorial Authority to Find Unfair Acts Abroad Is Unsupported 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

4 , The Commission Improperly Conflates Its In Rem Jurisdiction Over Imported Goods with Its Claim of Authority to Apply U.S. Law Extraterritorially Ill. THE COMMISSION ERRONEOUSLY FOUND A DOMESTIC INDUSTRY WHEN AMSTED ADMITTEDLY DOES NOT PRACTICE THE ASSERTED TRADE SECRETS IN THE UNITED STATES A The "Plain Language" of Section 337 Does Not Resolve the Dispute 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 B, The Commission Has Consistently Interpreted Section 337 to Require Complainants in IP-Based Investigations to 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 the United States... 24, The Investigations Cited Do Not Support the Commission's Departure from the Requirement That Complainants in IP-Based Investigations Use the Asserted IP Ink Markers Does Not Support the Commission's Argument That Domestic Use of Asserted IP Is Required Only with Respect to Statutory IP Rights IV. CONCLUSION ii

5 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) Bourdeau Bros. v. Int'l Trade Comm'n, 444 F.3d 1317 (Fed. Cir. 2006) Dodrill v. Ludt, 764 F.2d 442 (6th Cir. 1985)...,.. 4 In reamtorg Trading Corp., 75 F.2d 826 (CCPA 1935) In re Banco Santander Securities-Optimal Litig., Nos. 09-MD CIV, 09-CV CIV, 2010 WL (S.D. Fla. July 30, 2010)... 5 IRSv. NoelEstate, 380 U.S. 678 (1965)... 17, 20 Morrison v. NationalAustralia BankLtd., 130 S. Ct (2010)... passim Norex Petroleum Ltd. v. Access Indus., Inc., No cv, 2010 WL (2d Cir. Sept. 28, 2010)... 5 Viscofan, S.A.v. Int'l Trade Comm'n, 787 F.2d 544 (Fed. Cir. 1986) Other Authorities H.R. Rep. No (1987) H.R. Rep. No (1988)... 18, 19 H.R. Rep. No (1940) S. Rep. No (June 11, 1987)... ; S. Rep. No. 1903_ 76th Cong., 3rd Sess. (1940) Administrative Decisions Certain Apparatus for the Continuous Production of Copper Rod, Inv. No. 337-TA-52, 1979 ITC LExIS 99 (Nov. 1979) Certain Electric Power Tools, Battery Cartridges, and Battery Chargers, Inv, No. 337-TA-284, 1991 ITC LEXIS 909 (June 1991) 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) iii

6 Certain Ink Markers and Packaging Thereof Inv. No. 337-TA-522, 2007 ITC LEXIS 1450 (Dec. 2007) 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) 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 , Unreviewed ID (Dec. 1984) Certain Woodworking Machines, Inv. No. 337-TA-174, 1987 ITC LEXIS 226 (May 1987)... 25, 26, 28 iv

7 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 (2010). They argue, without any support, that no such authorization is necessary because 19 U.S.C ("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 ), 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.

8 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 the Commission'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 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

9 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 ) 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

10 the Investigation, see JA , 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

11 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 (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 has none." Norex Petroleum Ltd. v. Access Indus., Inc., No cv, 2010 WL , at *3 (2d Cir. Sept. 28, 2010) (citations omitted); see also, e.g., In re Banco Santander Securities-Optimal Litig., Nos. 09-MD CIV, 09-CV CIV, 2010 WL , 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.

12 C. The Commission Forsakes Its Adjudication of 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 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 , "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

13 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 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 Amsted also repeats certain factual allegations it made below, id , but the ID made no such findings, and the record does not support Amsted's allegations.

14 unauthorized commercial use of those trade secrets." Comm'n Br. 15, 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 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 secret law. 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.

15 Comm'n Br , 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 Commission and 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

16 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 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

17 3. The Domestic Acts Alleged by the Commission and 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 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 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 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

18 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 handful of otherwise lawful domestic actions to establish "trade secret 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 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

19 indication" of extraterritorial reach "in the... Act." 130 S. Ct. at 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 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

20 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 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 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 of the situation before the court - demonstrate the wisdom 14

21 of the presumption against extraterritoriality. Rather than guess 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 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

22 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 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 , 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 Br Amsted posits a series of nearly identical arguments in its brief. Amsted 16

23 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 A DOMESTIC INDUSTRY WHEN AMSTED ADMITTEDLY DOES NOT PRACTICE THE ASSERTED 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

24 (E), the subsections specifically applicable to investigations based on certain forms of federally protected IP (hereinafter referred to as "statutory IP"). Comm'n Br ; see also Amsted Br 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 nonstatutory 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 , 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

25 new but was instead "maintained" from previous practice. S. Rep. No , 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 , at 129; H.R. Rep. No (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 , at 129; H.R. Rep. No , at 157. Contrary to the Commission's argument (Comm'n Br ), 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 , at ; see also H.R. Rep: No , at 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

26 current subsection (a)(1)(a) of Section 337 essentially unchanged from the pre 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:

27 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 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 , 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_

28 defining the domestic industry. Comm'n Br ; see also Amsted Br 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 ; Amsted Br 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

29 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, :

30 2. There Is No Commission Precedent Departing from the Rule That Complainants in All IP-Based Investigations Must 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 ; Amsted Br 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-

31 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

32 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 * 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 the Requirement 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 ; Amsted Br 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

33 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 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

34 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 or trademarks, the relevant domestic industry has been defined in terms of the exploitation of the patents or trademarks in controversy. In investigations involving other unfair methods of competition such as false advertising or passing off, the Commission has defined the domestic industry in terms of complainant's U.S. facilities devoted to the production and sale of the article that was the subject of the unfair act (e.g., false advertising 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

35 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 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 * 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

36 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