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«Xue Chen TABLE OF CONTENTS Table of contents...1 I. Introduction..2 II. Background on Chinese Economy and Policies.3 III. Trade Secret Laws in the ...»

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“oppressiveness and vexation” to them “out of all proportion to plaintiff’s convenience.”60 (The court also considered the alternative that witnesses for Defendants may be forced to testify with the assistance of a translator.) As far as public interest factors go, Courts have held that to “timely decide a case” serves the public interest to “ensure that a United States owner of intellectual property has a forum to seek redress for alleged misuse by another United States citizen living here.”61 The choice for the plaintiff, as a United States corporation, to sue in the United States rather than in China is ordinarily given significant deference.62 D. Doctrine of Abstention Abstention from the exercise of federal jurisdiction “is the exception, not the rule.”63 The standard to establish such exceptions can be counterintuitive. In RF Micro Devices v. Xiang,64 defendant contended that the United States District Court for the Middle District of North Carolina should either stay or dismiss Plaintiff's federal lawsuit under the Colorado River abstention doctrine. The Court found that the case fails to present the exceptional circumstances required for abstention because its task “is not to find some substantial reason for Id. (“If that alone were sufficient to dismiss a case for forum non convenience, American plaintiffs rarely would have the opportunity to prosecute claims against foreign defendants in American courts. Therefore, the private factors weigh in favor of the Court hearing the case.) Jacobs Vehicles Systems, Inc. v. Yang, 2013 WL 4833058 *2. (The Plaintiff, Jacobs Vehicles Systems (“JVS”) seeks to protect its alleged trade secrets developed in the United States, against a former employee who it claims has misappropriated them for the benefit of a JVS competitor in China. The controversy will affect not only JVS’s Chinese interests but also affect the integrity of JVS's contractual and intellectual property interests in the United States. Id.) See SAS Institute, Inc. v. World Programming, Ltd., 468 F. App'x 264, 266–67 (4th Cir.2012) Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976); see also id. at 817 (noting the “virtually unflagging obligation of the federal courts to exercise the jurisdiction given them”).

RF Micro Devices v. Xiang, 2013 WL 5462295 *3 the exercise of federal jurisdiction,” but rather “to ascertain whether there exist ‘exceptional’ circumstances, the ‘clearest of justifications,’... to justify the surrender of that jurisdiction.” 65 E. Foreign Sovereign Immunity Under Foreign Sovereign Immunities Act (“FSIA”), a foreign sovereign is presumptively immune from suit in federal court, but presumption erodes when the suit concerns the sovereign’s commercial activities and transactions.66 Commercial activity exception, which vitiates a foreign sovereign’s immunity in an action “based upon a commercial activity carried on in the United States.”67 The commercial activity exception is codified in § 1605(a)(2): A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.68 In determining whether the activity is commercial, the “FSIA directs courts to look to the nature of the activity in question, rather than to its purpose.” “Even if performed with a public purpose in mind, acts by governmental entities are considered commercial in nature if the role of Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25–26 (1983).

28 U.S.C.A. §§ 1602, 1604, 1605(a)(2). (The FSIA “provides the sole basis for federal jurisdiction” over claims against a foreign state and its instrumentalities, and “creates a statutory presumption that a foreign state and its instrumentalities are immune from suit unless one of the specific exceptions enumerated in sections 1605 through 1607 of the Act applies.” Exp. Grp. v.

Reef Indus., Inc., 54 F.3d 1466, 1469 (9th Cir.1995)) 28 U.S.C. § 1605(a)(2).


the sovereign is one that could be played by a private actor.”69 As a result, “an activity is commercial unless it is one that only a sovereign state could perform.”70 “A foreign state that engages in commercial activity may still be immune unless the action had a direct effect on a plaintiff occurring in the United States.”71 “[A]n effect is ‘direct’ if it follows as an immediate consequence of the defendant’s activity.”72 Although the “mere financial loss by a person— individual or corporate—in the [United States] is not, in itself, sufficient to constitute a ‘direct effect,’” if a “legally significant act giving rise to the claim occurred” in the United States, then a direct effect exists.73 “To satisfy the ‘in connection with’ requirement, the acts complained of must have some ‘substantive connection’ or a ‘causal link’ to the commercial activity.”74 In BP Chemicals v. Jiangsu Sopo Corp.,75 BP Chemicals owned a trade secret of acetic acid in paint which it has licensed around the world. The United States District Court for the Eastern District of Missouri granted defendant’s motion to dismiss on basis of sovereign immunity, in that Sopo was considered a “foreign sovereign” since it is owned by the government of the People’s Republic of China.76 The Court of Appeals held that claim for misappropriation of trade secrets under Missouri Uniform Trade Secrets Act (“MUTSA”) was based upon defendant’s commercial activity carried on in the United States, and thus came Park v. Shin, 313 F.3d 1138, 1145 (9th Cir.2002).


Meadows v. Dom. Rep., 817 F.2d 517, 523 (9th Cir.1987).

Repblic of Argentina v. Weltover, 504 U.S. at 618 (1992) (internal citation and quotation marks omitted); United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir.2004) (recognizing Weltover’ s definition of direct effects).

Adler v. Federal Republic of Negeria, 107 F.3d at 726–27 (1997) (internal citation and quotation marks omitted).

Id. at 726 (quoting Fed. Ins. Co. v. Richard I. Rubin & Co., 12 F.3d 1270, 1289–91 (3rd Cir.


BP Chemicals LTD. v. Jiangsu Sopo Corp., 285 F.3d 677 (8th Cir. 2002) Id. at 677.

within commercial activity exception to general grant of sovereign immunity under FSIA. 77 Sopo, through its agent, another government-owned business, solicited business from vendors in the United States on an ongoing basis. Since such commercial activity was carried on in the United States, Sopo is not immune from BP’s suit in federal court.

The focus of commercial acts is not on whether the purpose of conducting such acts is for a private entity, or a government. In addition, the alleged misappropriator does not have to be “a necessary and indispensable party”78 in the case, so long as the direct effect of such commercial acts occurred in the United States. In Cybersitter,79 one Defendant Haier moves to dismiss the action in its entirety contending that a necessary and indispensable party—the People’s Republic of China (“PRC”)—is immune from this suit. The Court conducted the analysis of the “commercial activity” prong first, without deciding that the PRC is a necessary and indispensable party. Since the PRC “engaged in the purely economic conduct of licensing, sublicensing, distributing, and promoting the software program known as Green Dam at issue in this litigation,” specifically, the PRC allegedly paid defendant’s employees approximately $6.9 million for a one-year license to distribute the Green Dam program, and pursuant to that license, the PRC “has made the Green Dam program available for free downloading worldwide on the Internet, including on its own official site, as well as on many other privately owned Internet sites,” the PRC’s purchase of the licensing and distribution rights to the Green Dam program and subsequent sublicensing of the program to manufactures were therefore commercial acts.80 Id. at 680.

Cybersitter, LLC v. PRC, 805 F.Supp.2d at 966 (C.D.Cal. 2011) Id. at 966.

Id. at 967.

Whether the PRC conducted this business for a governmental purpose is irrelevant.81 Finally, the injury occurred at Plaintiff’s principal place of business in California. Thus, the PRC’s actions had a direct effect in the United States. (The causal link between the PRC’s activity and plaintiff’s claim was established to satisfy the “in connection with a commercial activity” prong, through plaintiff’s claims of misappropriation of trade secrets, copyright infringement, unfair competition, and civil conspiracy, based upon, in part, on the PRC’s licensing of the Green Dam program and subsequent sublicensing and distribution of the program through manufacturers and various websites without Plaintiff’s consent. Id.at 967.)

–  –  –

A. Does TianRui v. ITC Reflect A Future Trend?

In the United States, a U.S. corporation may pursue an administrative agency proceeding prior to bringing a trade secrets misappropriation action against a foreign company in a U.S.

district court. The United States International Trade Commission (ITC), with its broad jurisdiction, has been a unique stage for domestic intellectual property right owner to seek justice.

Under Section 337 of the Tariff Act of 1930, the ITC exercises in rem, as well as in personam jurisdiction. Therefore, a foreign trade-secret misappropriator cannot be "immune from scrutiny if the act of misappropriation occurred overseas."82 In 2009, the ITC issued a limited exclusion order against TianRui, a Chinese company.83 The Plaintiff, Amsted Industries Inc. filed a Weltover, 504 U.S. at 617 (holding that Argentina’s issuance of certain bonds was a commercial activity under FSIA because “it is irrelevant why Argentina participated in the bond market in the manner of a private actor; it matters only that it did so.”).

Id. at 1329.

The ITC can investigated actions involving trade secrets and exclude the importation of goods that violate the right of an intellectual property owner, who filed the complaint.

complaint with the ITC alleging a violation of Section 337 based on TianRui Group Co., Ltd.’s misappropriation of trade secrets.84 TianRui Group Co., Ltd. and TianRui Group Foundry Co., Ltd. manufacture steel railway wheels in China. In 2005, TianRui attempted to enter into a license agreement with Amsted’s wheel manufacturing technology but failed to do so because of parties’ disagreement on certain terms of the license. TianRui then hired nine employees from one of Amsted’s Chinese licensees, Datong ABC Castings Co., Ltd.85 Datong had expressly notified its employees that information related to the ABC process was proprietary and confidential.86 The ALJ found that TianRui had misappropriated 128 trade secrets that were owned by Amsted, and concluded that substantial injury on Amsted’s domestic injury has been established.87 The Commission issued a limited exclusion order. TianRui appealed the Commission’s decision to the Federal Circuit, contesting the ITC’s authority to apply Section 337 extraterritorially on the ground that Congress did not intend for section 337 to be applied extraterritorially.88 The CAFC affirmed the Commission’s ruling.89 While the administrative law judge at the ITC analyzed the alleged misappropriation under Illinois trade secret law90, the Federal Circuit held91 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 an “unfair method of competition” under section 337. The court also cited the Restatement of Unfair Competition and Tianrui Group Co. v. International Trade Com’n, 661 F.3d 1322, 1325 (2011).

Id. at 1324.



Id. at 1325, 1326.

Id. at 1324.

Id. at 1325.

Id. at 1327.

the Uniform Trade Secrets Act as authorities.92 The Court seems to have taken on a guardianship role to maintain a level of fair play in the domestic market involving American and international competitors.

B. Competition between the U.S. and China Is a Major Concern China has made great achievements in the past 20 years. On the global economic sense, China’s growth over the last two decades has been unprecedented. At the end of 1990 and even up to early 2000s, many scholars believed that China could not continue with its annual growth rate due to the lack of fundamental reforms. But China’s annual growth rate during the period 1990 – 2010 has increased to 10.4%, compared to 9.0% between the period of 1979 – 1990.93 In particular, China’s average annual trade growth rate measured in current U.S. dollar between 1990 and 2010 was an astonishing 17.6 %. At the beginning of that period, China’s exports represented a mere 1.3% of global exports, compared to its present global share of 8.4%.94 Scholars have predicted that China can maintain 8% annual growth rate for another two decades.

The benefits shared and opportunities created by China’s growth for high-income and developing countries is, China’s growth will expand markets for their capital goods and intermediate good exports. At the mean time China will expand its overseas market by exporting more commodities, high-technology based, or not, into the western world.

As mentioned in the Introduction, China has set a goal of becoming an “innovation nation” by 2020 and a “global scientific power” by 2050. The trend from exportation of non-high Id. at 1328.

GORDON H. CHANG, The Coming Collapse of china (2001).

JUSTIN YUFU LIN, Sr. Vice President and Chief Economist World Bank, China and the Global Economy, remarks given at University of Science and Technology, Hong Kong, March 23, 2011.

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