US Trade Commission: No infringement by Sino Legend

In the world's first trade secret case to receive a ruling by US and Chinese courts, the US International Trade Commission recently cleared Chinese company Sino Legend Chemical Co of an infringement allegation.

The commission overturned its initial determination and ruled in favor of Zhangjiagang-based Sino Legend in a lawsuit alleging theft of trade secrets brought before the court by US company SI Group in May 2012.

According to its verdict, most of SI Group's claimed trade secrets were invalid. The commission also revoked the request of "excluding from entry into the United States all rubber resins, including tackifiers, manufactured using SI Group trade secrets" that the US company planned to seek.

SI Group also filed the same lawsuit with a Shanghai court in 2011 and lost its first and final appeals last year, according to a report from International Finance News.

Sino Legend has to hold off on celebrating the triumph because US President Barack Obama has not signed the final approval. The deadline is March 15.

According to US law, the president has the right to overturn the final ruling of the commission. Sino Legend told the newspaper that it would sue the USITC if that happens.

SI Group is a leading rubber and tire resin manufacturer in the world and Sino Legend is also a promising company in the field. The Chinese company, established in 2006, now holds 70 percent of the Chinese market and a 30 percent share for the rest of Asia.

The prolonged dispute started in 2008 when SI Group filed a complaint with the Shanghai police unit responsible for economic crime, alleging that the Chinese company acquired SI Group's trade secrets in 2007 when it hired a manager who had formerly worked in SI's Shanghai manufacturing plant.

In 2010, the US company escalated the dispute when it brought a lawsuit to the Shanghai No. 2 Intermediate People's Court.

SI Group's efforts in the Chinese court system were unsuccessful. In October last year, the Shanghai High People's Court made a final decision that SI Group's appeal lacked factual and legal merit and reiterated that no trade secrets were infringed upon by Sino Legend.

Also, in May 2012, before the Chinese court made any rulings, SI Group filed the same allegation asking the USITC to launch a Section 337 investigation into Sino Legend's alleged theft of the trade secrets.

When trade secrets are concerned, the stakes are relatively higher compared to many other aspects of intellectual property, experts explained in Legal Daily.

"Once a general exclusion order is issued, the entire industry will be restricted, including those companies not involved in disputes," said Wang Jiabin, co-founder of King & Wood Mallesons, one of the leading law firms in China.

Also, the trade secret cases can easily lead to the disclosure of the defendant's trade secrets, said Yang Quanhai, chairman of Sino Legend.

Yang said they had submitted all the company's trade secrets to the assigned accrediting institution, but some reports, including the details of Sino Legend's technical secrets, are now in SI Group's hands.

"The most dangerous thing is not the risk itself, but the inadequate understanding of it," said Yang, who also hopes China can one day train more lawyers with experience dealing with Section 337 investigations on trade secrets.

Statistics from the Ministry of Commerce shows that the USITC has initiated 13 Section 337 investigations on trade secrets since 2002, nearly half of which involved Chinese companies, including Huawei, ZTE and Sany Heavy Industry.