IP Law Daily, TRADE SECRETS—Fed. Cir.: 25-year import ban is proper sanction against Turkish company accused of stealing Dow Chemical trade secrets, (Feb 15, 2017)

By Cheryl Beise, J.D.

The International Trade Commission did not abuse its discretion in entering default judgment against Organik Kimya and imposing a 25-year limited exclusion order on the importation of its opaque polymer products as a sanction for the company’s bad faith spoliation of evidence relevant to the alleged misappropriation of Dow Chemical trade secrets, the U.S. Court of Appeals for the Federal Circuit has held (Organik Kimya San. Ve Tic, A. Ş., v. ITC, February 15, 2017, O’Malley, K.).

In May 2013, Dow Chemical Company and its subsidiaries, Rohm and Haas Company and Rohm and Haas Chemicals LLC (collectively, "Dow") petitioned the ITC pursuant to Section 337 of the Tariff Act of 1930 for an investigation into opaque polymer products produced by Organik Kimya San. ve Tic., A.Ş., Organik Kimya Netherlands B.V., and Organik Kimya US, Inc. (collectively, “Organik Kimya”). Opaque polymers are hollow spheres used as paint additive to increase opacity. Dow is the worldwide market leader in supplying opaque polymers to paint manufacturers. The ITC initiated an investigation (No. 337-TA-883) into whether Organik Kimya’s products infringed four Dow patents. Dow added trade secret misappropriation claims after learning that three of its former employees—Dr. Dilip Nene, Dr. Guillermo Perez and Leonard Strozzi—likely assisted Organik Kimya with its development of opaque polymers.

Spoiliation. As Dow attempted to obtain discovery relating to the activities of Nene, Perez, and Strozzi, Dow discovered spoliation of evidence "on a staggering scale." Dow’s forensic examiners discovered that Organik Kimya took many steps to wipe information from Perez’s laptop, including overwriting hard drive files, backdating the computer’s internal clock, and running the CCleaner and WinHex file removal programs multiple times.

The Administrative Law Judge (ALJ) concluded that Organik Kimya engaged in massive spoliation of relevant evidence on Perez’s laptop in bad faith and in violation of discovery orders. The ALJ also determined that Organik Kimya in bad faith engaged in "the spoliation of evidence on Strozzi’s laptop and the spoliation of the Strozzi laptop itself" in an effort to prevent Dow from accessing relevant evidence. As to Nene, the ALJ found that Organik Kimya acted in reckless disregard of its duty to preserve information, but that its conduct did not amount to spoliation.

Sanctions. In May 2014, Dow moved for sanctions, including a default judgment against Organik Kimya. Two days later, Organik Kimya filed a motion to terminate the investigation by consent order. Organik Kimya "agreed to completely and indefinitely withdraw the accused products from the U.S. market." The ALJ held a hearing on both motions. In an initial determination, the ALJ granted Dow’s motion for default judgment as a sanction for Organik Kimya’s abhorrent conduct. The Commission affirmed the ALJ’s findings and determined that a cease and desist order and an exclusion order for 25 years were appropriate remedies. The exclusion order allowed Organik Kimya to seek permission from the Commission to import products it could show were developed without using Dow’s misappropriated trade secrets.

Default judgment. The Federal Circuit reviewed the Commission’s sanctions for abuse of discretion. Under 19 C.F.R. § 210.33(b), the ALJ in an ITC investigation has the authority to issue non-monetary sanctions for failure to comply with an order compelling discovery, including "any other non-monetary sanction available under Rule 37(b) of the Federal Rules of Civil Procedure." Rule 37 expressly permits entry of default judgment as a sanction for disobeying a discovery order.

The Federal Circuit concluded that the Commission acted within its discretion in entering default judgment against Organik Kimya for failure to comply with discover orders. The ALJ in this case made extensive findings regarding Organik Kimya’s spoliation of evidence on multiple occasions, the court noted. The Commission found that Organik Kimya destroyed "potentially hundreds of thousands of files," despite explicit orders from the ALJ to preserve documents and then tried to deceive the ALJ as to its actions. In addition, it found that Organik Kimya’s "willful, bad faith misconduct" was highly prejudicial to Dow.

Limited exclusion order. On appeal, Organik Kimya did not challenge the Commission’s cease and desist order, only its limited exclusion order. The Tariff Act states that the Commission shall enter a limited exclusion order if it determines that a violation of § 1337 has occurred and public interest factors do not counsel against its issuance. 19 U.S.C. § 1337.

Organik Kimya argued that the Commission committed legal error by not considering its arguments challenging the exclusion remedy, including its 25-year term. Organik Kimya asserted that exclusion orders in trade secret misappropriation cases typically last five to ten years. However, the length of the exclusion order depends on the trade secrets at issue and evidence in the record, the Federal Circuit noted.

The record in this case supported the Commission’s exclusion order. The Commission credited the opinion of Dow’s expert that it would take Organik Kimya 15 to 25 years to develop opaque polymers independently. The expert explained the basis for his calculation and supported his opinion with extensive facts from the record.

"Given this basis for the Commission’s decision, and that Organik Kimya can end the exclusion order period at any time by seeking an advisory opinion or initiating a modification proceeding before the Commission and showing that Organik Kimya has produced opaque polymers independently," the Federal Circuit concluded that the Commission neither abused its discretion nor committed legal error in this case. The Commission’s decision’s was accordingly affirmed.

The case is Nos. 2015-1774 and 2015-1833

Attorneys: Catherine Emily Stetson, John Robert Robertson, and Benjamin Holt (Hogan Lovells IS LLP) for Organik Kimya San. ve Tic., A.Ş., Organik Kimya Netherlands B.V., and Organik Kimya US, Inc. Raymond N. Nimrod, William Adams, James Baker, S. Alex Lasher, Paul F. Brinkman, and Charles Kramer Verhoven (Quinn Emanuel Urquhart & Sullivan, LLP) for Rohm and Haas Company, Rohm and Haas Chemicals LLC, and Dow Chemical Company. Sidney A. Rosenzweig, Dominic L. Bianchi, and Wayne W. Herrington, Office of the General Counsel, U.S. International Trade Commission

Companies: Organik Kimya San. ve Tic., A.Ş.; Organik Kimya Netherlands B.V.; Organik Kimya US, Inc.; Rohm and Haas Company; Rohm and Haas Chemicals LLC; Dow Chemical Company

Cases: Patent TradeSecrets FedCirNews