By Eric Schweibenz
On January 4, 2013, Innovation First International, Inc., Innovation First, Inc., and Innovation First Labs, Inc. (collectively, “Innovation First”)—all of Greenville, Texas—filed a complaint requesting that the ITC commence an investigation pursuant to Section 337.

The complaint alleges that CVS Pharmacy Inc. of Woonsocket, Rhode Island (“CVS”) imports into the U.S. and/or sells within the U.S. after importation certain robotic toys and components thereof that were made in China using Innovation First’s misappropriated trade secrets.  In particular, the complaint states that CVS is a reseller of robotic toy fish manufactured by or for Zuru Inc. (“Zuru”), a corporation based in Shenzhen, China. 

According to the complaint, certain of the trade secrets at issue relate to a design for a miniature robotic toy fish.  Additional trade secrets at issue specifically relate to Innovation First’s innovative steering apparatus technology, Innovation First’s proprietary techniques for creating a seal for a battery door of a water toy, and Innovation First’s miniaturization know-how.

The complaint alleges the following facts.  In November 2009, a Mr. Xiaoping Lu (“Lu”) began working for Innovation First International China, an Innovation First subsidiary.  During his employment, Lu was privy to confidential and proprietary information regarding Innovation First’s miniaturization know-how and new technologies that were under development for Innovation First, including technical information, schematics, and designs.  Specifically, Lu’s team was working to develop a future generation HEXBUG® water toy with a battery door seal that kept the battery compartment dry when the toy was in water.  Lu also worked on a new miniature steering apparatus.

According to the complaint, on August 25, 2011, Lu resigned from his position at Innovation First.  Shortly thereafter, Lu began working with Zuru, where he has been and is now responsible for the design of Zuru’s robotic toy fish products.  The complaint alleges that Lu misappropriated Innovation First’s trade secrets and has shared these trade secrets with Zuru for use in Zuru’s robotic toy fish products.

The complaint further alleges that CVS has sold and is currently selling Zuru’s robotic toy fish products in the U.S. after importation despite knowing that Zuru wrongfully acquired Innovation First’s trade secrets and incorporated them into Zuru’s robotic toy fish products.  In particular, the complaint alleges that one selling point of Zuru’s robotic toy fish products to customers like CVS is that the products are developed by the same individuals who designed and developed Innovation First’s HEXBUG® toys.

Regarding domestic industry, Innovation First states that it has made and continues to make significant investments in plant and equipment in the U.S. dedicated to research, development, design, manufacturing, and distribution for products directed to the robotic toy industry.  Innovation First specifically refers to its facilities in Greenville, Texas.  Innovation First also refers to significant U.S. investments in labor and capital related to the robotic toy industry.  In addition, Innovation First alleges that CVS’s past and continuing sales of articles incorporating Innovation First’s misappropriated trade secrets have caused and threaten to cause substantial injury to Innovation First’s overall domestic robotic toy industry—as well as its embryonic robotic toy fish industry.  Innovation First alleges injury through at least (a) price erosion; (b) reduction in sales; (c) reduction in revenue; and (d) lost market position.

As to related litigation, Innovation First states that on October 6, 2011, it filed suit against Zuru in Texas state court alleging trade secret misappropriation and aiding and abetting breach of fiduciary duty.  According to the complaint, Innovation First sought and received a temporary restraining order against Zuru.  Zuru then had the case removed to the U.S. District Court for the Northern District of Texas.  In the district court, the case was subsequently dismissed for forum non conveniens in part because the controversy allegedly arose in China and the trade secrets at issue were allegedly misappropriated in China.  The district court also dissolved the state court’s temporary restraining order.  Innovation First then appealed the district court’s dismissal to the U.S. Court of Appeals for the Fifth Circuit.  That appeal is currently pending.

With respect to potential remedy, Innovation First requests that the Commission issue a limited exclusion order and a cease and desist order directed at CVS.  Innovation First also requests that the Commission issue an order instructing CVS to immediately and verifiably destroy all robotic toys in its possession, custody, or control that were manufactured by, through, or with one or more of Innovation First’s misappropriated trade secrets.  Innovation First further requests that the Commission issue an order instructing CVS to immediately and verifiably turn over to Innovation First all documents and things in its possession, custody, or control that contain or embody one or more of the misappropriated trade secrets and/or any information derived from the misappropriated trade secrets.

We note that this appears to be the fourth Section 337 complaint since the Federal Circuit’s decision in TianRui Group Co. v. ITC, 661 F.3d 1322, 1326 (Fed. Cir. 2011) that alleges the importation of articles manufactured using misappropriated trade secrets where the acts of misappropriation occurred in China.  For a discussion of this growing trend, see our June 22, 2012 post.