By Eric Schweibenz
On October 14, 2016, the International Trade Commission (“the Commission”) issued an advisory opinion in Certain Stainless Steel Products, Certain Processes for Manufacturing or Relating to Same, and Certain Products Containing Same (Inv. No. 337-TA-933).

By way of background, this investigation is based on a complaint filed by Valbruna Slater Stainless, Inc., Valbruna Stainless Inc., and Acciaierie Valbruna S.p.A. (collectively, “Valbruna”) alleging violation of Section 337 in the importation into the U.S. and sale of certain stainless steel products manufactured using Valbruna’s allegedly stolen trade secrets.  See our September 8, 2014 and October 9, 2014 posts for more details on the complaint and Notice of Investigation, respectively.

On December 8, 2015, ALJ Theodore R. Essex issued an initial determination (“ID”) (Order No. 17) finding Respondent Viraj Profiles Limited (“Viraj”) in default for spoliation of evidence and ordering the disgorgement of Valbruna’s operating practices in Viraj’s possession.  On February 8, 2016, the Commission determined to review Order No. 17 and affirmed the default finding against Viraj.  On April 4, 2016, the Commission determined not to review an ID (Order No. 19) granting Valbruna’s motion for partial termination of the investigation based on withdrawal of the complaint against all respondents except Viraj.  On May 25,2016, the Commission modified the reasoning underlying the default finding in Order No. 17, vacated the ID’s order of disgorgement, and terminated the investigation with a finding of violation of Section 337 as to Viraj. The Commission issued a limited exclusion order (“LEO”) prohibiting the unlicensed entry of certain stainless steel products, certain processes for manufacturing or relating to same, and certain products containing same manufactured or sold by Viraj using any of the misappropriated trade secrets identified in the complaint (“the Valbruna Trade Secrets”).  The LEO is in effect for 16.7 years and includes a provision requiring that “[p]rior to the importation of stainless steel product that may be subject to this Order, the importer or Respondent must seek a ruling from the Commission to determine whether the stainless steel product sought to be imported is covered by this Order.”  The Commission also issued a cease-and-desist order (“CDO”).  See our June 9, 2016 post for more details regarding the Commission’s opinion.

On June 22, 2016, Viraj filed a request for an advisory opinion pursuant to Commission Rule 210.79.  Specifically, Viraj sought an advisory opinion declaring that stainless steel billets and ingots which have been melted, refined, and cast by an unrelated third-party are not covered by the Commission’s orders because the Valbruna Trade Secrets associated with the LEO relate only to the “melting” stage of the stainless steel manufacturing process (stage 2 of a five-stage process).  Viraj admitted involvement in each of the five stages of manufacturing, but under the procedure it proposed, Viraj would purchase ready-made billets and ingots, and perform only stages 3, 4, and 5 of manufacturing.  Viraj asserted that it would not be involved in the “melting” of the third-party billets and ingots, and therefore these products would not be products manufactured using the Valbruna Trade Secrets. Id. at 4-5.

In opposition, Valbruna argued that an advisory opinion is inappropriate because, inter alia: (1) Viraj has not framed its request as fully and accurately as possible because it failed to provide sufficient facts to establish that the products it seeks to import are not covered by the Commission’s orders; (2) Viraj’s credibility in this investigation is tainted because it was found to have spoliated evidence; (3) neither the Commission nor Valbruna can assess Viraj’s contentions without specific, verifiable information regarding the manufacturing protocol and the stainless steel articles at issue; (4) Viraj has not identified any specific stainless steel product already manufactured using its proposed protocol and has not submitted any actual articles; (5) Viraj’s request would undermine the enforcement of Section 337 and the orders that issued in this investigation because it would permit Viraj to import stainless steel products merely by self-certifying them as compliant with its hypothetical protocol; (6) the requested advisory opinion is not in the public interest, and Viraj’s assertions that consumers and competitive conditions would be served are conclusory and unsupported; (7) there is no compelling business need for the requested advisory opinion since Viraj is not investing in expensive plant and equipment to manufacture the proposed articles but instead proposes to outsource a stage of the manufacturing process to an unaffiliated entity and adopt a compliance mechanism; and (8) Viraj’s misappropriation is not limited to a single stage of the manufacturing process because Viraj gained knowledge that carried over into other aspects of the manufacturing process as well as its sale of stainless steel products in the U.S. (e.g., through the misappropriation of customer lists).  If the Commission determined to issue an advisory opinion, however, then Valbruna argued that it should be referred to the ALJ because numerous questions of fact exist since it is unknown what information would be provided to the third-party manufacturers, or how the Commission could verify that Viraj or its agents provided no information derived from the Valbruna Trade Secrets to the third-party manufacturer.

In view of the pre-importation requirement that Viraj must seek a ruling from the Commission regarding its proposed stainless steel products, the Commission agreed that there is a compelling business need for the advisory opinion.  In addition, the Commission found that it would be beneficial to consumers and competitive conditions in the U.S. if stainless steel products that are demonstrably free of the use of the Valbruna Trade Secrets were allowed to be imported.  Further, the Commission stated that an advisory opinion may also facilitate the enforcement of the LEO.  The Commission also found that the public interest would be served by allowing Viraj to import steel products upon a determination that specific steel products are manufactured without the benefit of the Valbruna Trade Secrets.  The Commission determined that no fact finding would be necessary to render an advisory opinion, and thus did not refer the matter to the ALJ or the Commission Investigative Staff.

First, the Commission observed that its opinion accompanying the LEO explicitly stated that “Viraj Profiles will bear the burden of demonstrating, in ancillary proceedings before the Commission, that specific products that it seeks to import are not manufactured using any of the trade secrets identified in Valbruna’s complaint.”  The Commission had determined in that opinion that such a provision was warranted because “it (1) reduces the burden on CBP, which would otherwise be responsible for making a decision on importation without the benefit of a factual record and decision by the ALJ and the Commission; (2) places the burden on Viraj Profiles to establish that the goods it seeks to import were not manufactured using knowledge from its misappropriation of Valbruna’s trade secrets and prevents circumvention of the exclusion order, while maintaining fairness to Viraj Profiles; and (3) gives Valbruna the opportunity to respond and contest any issues or evidence raised by Viraj Profiles.”

Second, the Commission determined that Viraj’s request provided “scant information concerning its proposed course of action.”  In particular, the Commission found that the request did not identify the specific products it alleges are outside the scope of the Commission’s orders, but instead proposed a four-step protocol for the Commission to consider “without any factual context or detail, or any supporting documentation.”  The Commission also determined that Viraj proposed “no means, mechanism, or documentation for the Commission or Valbruna to validate Viraj’s allegation that steel manufactured using Viraj’s proposed protocol does not utilize the Valbruna Trade Secrets.”  Further, the Commission noted that Valbruna’s response identified additional data and information that would aid the Commission’s determination as to whether any stainless steel products produced by Viraj are outside the scope of the order, and that Viraj did not dispute that such supporting information and documentation would be relevant and material, other than contesting that a product sample is not necessary.  Accordingly, the Commission found that Viraj did not provide sufficient information for the Commission to determine whether any specific stainless steel products sought to be imported by Viraj would be covered by the LEO.