By Eric Schweibenz
On December 20, 2012, Fellowes, Inc. of Itasca, Illinois and Fellowes Office Products (Suzhou) Co. Ltd. of China (collectively, “Fellowes”) filed a complaint requesting that the ITC commence an investigation pursuant to Section 337.

The complaint alleges that the following entities and individuals (collectively, the “Proposed Respondents”) unlawfully import into the U.S., sell for importation, and/or sell within the U.S. after importation certain paper shredders that are made in China using Fellowes’s misappropriated trade secrets and/or that infringe one or more claims of  U.S. Design Patent Nos. D583,859 (the ‘859 patent) and D598,048 (the ‘048 patent):

  • New United Co. Group Ltd. of China

  • Jiangsu New United Office Equipments Co. Ltd. of China

  • Shenzhen Elite Business Office Equipment Co. Ltd. of China

  • Elite Business Machines Ltd. of China

  • New United Office Equipment USA, Inc. of Northbrook, Illinois

  • Jiangsu Shinri Machinery Co. Ltd. of China

  • Zhou Licheng, a citizen and resident of China

  • Randall Graves, a U.S. citizen and resident of China

  • “Jessica” Wang Chongge, a citizen and resident of China

According to the complaint, the intellectual property at issue relates to the development and testing processes and engineering know-how necessary to manufacture Fellowes shredders.  In particular, Fellowes refers to trade secrets embodied in its shredder development processes, bill of specifications, design tools, drawings, specifications, tolerances, manufacturing molds and tooling, quality control tests, “key learnings,” and training materials.  Fellowes also refers to the ‘859 and ‘048 patents, which cover various design features of Fellowes’s shredders.

The complaint alleges the following facts.  In 2007, a Fellowes affiliate, Fellowes Hong Kong Ltd., acquired a fifty-percent ownership stake in an existing Chinese joint venture, Changzhou Jinsen Office Supplies Co. Ltd. (“Changzhou”).  The other fifty-percent was owned by Jiangsu Shinri Machinery Co. Ltd. (“Shinri”), a company owned and controlled by an individual named Zhou Licheng (“Zhou”).  Thereafter, Changzhou also conducted business under the name Fellowes Manufacturing (Changzhou) Co. Ltd. (“Jinsen”).  The purpose of Jinsen was to manufacture shredders exclusively for Fellowes.  Fellowes provided Jinsen with its trade secrets, know-how, and all of the tooling, molds, and other processes needed to manufacture its shredders.

According to the complaint, Jinsen operated smoothly for three years.  However, in August 2010, Zhou allegedly made a series of demands on Fellowes, including a demand that Fellowes assign all of its trade secrets and other intellectual property rights and engineering capabilities to Jinsen.  When Fellowes refused, Zhou allegedly blockaded the entrances and exits to Jinsen’s facility, thereby halting all production and shipments.  When Jinsen subsequently failed as an ongoing concern, Zhou allegedly manipulated the Chinese legal process and took physical control of Jinsen’s facility and inventory, including 70,000 packaged Fellowes shredders.

The complaint further alleges that Zhou, along with Randall Graves—the former operations manager of Jinsen—then formed Jiangsu New United Office Equipments Co. Ltd. (“New United”), which is presently operating out of the Jinsen facility, manufacturing shredders for importation into the U.S., and utilizing the tooling, molds, and other equipment and information that embody Fellowes’s trade secrets.  The complaint also alleges that the Proposed Respondents hired away former Jinsen employees and engineers who themselves were privy to, and had knowledge of, Fellowes’s trade secrets and know-how and who were obligated not to disclose them.  The complaint further alleges that New United is now profiting from its wrongdoing by importing into the U.S. and selling shredders that utilize Fellowes’s trade secrets to compete directly with Fellowes and other domestic shredder manufacturers.

In addition, the complaint alleges that certain New United shredders infringe the ‘859 and ‘048 patents.  The complaint specifically refers to New United’s Model Nos. S4-06MP, ST-10C, and ST-6M shredders as infringing products.

Regarding domestic industry, Fellowes states that it employs 580 full-time employees in the U.S. and that it is the leading manufacturer and seller of home and office paper shredders in the U.S.  Fellowes states that, with regard to its trade secrets, a domestic industry exists based on Fellowes’s substantial investments in engineering, research and development, and marketing within the U.S. of shredders incorporating its trade secrets, Fellowes’s significant employment of labor and capital in the U.S. relating to the development and manufacture of its shredders, Fellowes’s manufacturing-related and other value-added activities in the U.S., and Fellowes’s significant investment in utilizing other U.S. businesses in the development and manufacture of its shredders.  Fellowes further alleges that the Proposed Respondents’ alleged trade secret misappropriation has resulted in substantial and irreparable injury to a domestic industry, and threatens a domestic industry, pursuant to Section 337(a)(1)(A)(i).  Fellowes also states that it has invested substantial resources in the U.S. towards the development of shredders covered by the ‘859 and ‘048 patents.

As to related litigation, the complaint states that Fellowes, Inc. filed suit against Jinsen in the U.S. District Court for the Northern District of Illinois in September 2011, alleging that Jinsen breached Fellowes’s purchase orders by refusing to ship certain products.  The complaint also states that Zhou, acting on behalf of Jinsen, filed suit in Chinese court seeking payment for the unshipped products.  According to the complaint, the district court in Illinois granted Fellowes’s request for an antisuit injunction barring Jinsen from pursuing its lawsuit in China.  The ruling granting the injunction was subsequently appealed to the U.S. Court of Appeals for the Seventh Circuit, but the appeal has been stayed by agreement of the parties.  The complaint also states that Fellowes Office Products (Suzhou) Co. Ltd. is engaged in additional litigation against Jinsen and others in China.

With respect to potential remedy, Fellowes requests that the Commission issue permanent limited exclusion orders and permanent cease and desist orders.  Fellowes further requests that the Commission issue orders to immediately and verifiably destroy all paper shredders and components thereof and to immediately and verifiably turn over all documents and things in the possession, custody, or control of the Proposed Respondents that incorporate Fellowes’s misappropriated trade secrets.

We note that this appears to be the third 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.