For the first time, the U.S. International Trade Commission (“ITC”) has set forth and applied its legal standard for a theft or conversion claim in a Section 337 of the Tariff Act of 1930 investigation. Section 337 gives the ITC broad powers to investigate and address unfair acts in the importation of articles into the United States. Most Section 337 investigations are based on infringement of statutory intellectual property such as patents, trademarks, and copyrights. But Section 337 investigations can also be based on non-statutory unfair acts, such as trade secret misappropriation, unregistered trade dress infringement, and anti-trust violations. In a November 1, 2024 opinion in Certain Botulinum Toxin Products and Processes for Manufacturing or Relating to Same, the Commission articulated the legal standard for establishing a violation of Section 337 based on theft or conversion. Applying that standard, and as discussed in this article, the Commission found no showing that the respondents converted complainant’s property, and hence no violation.

Case Background

Medytox Inc. is a biopharmaceutical company currently seeking approval from the U.S. Food and Drug Administration for its liquid botulinum toxin product. In its complaint, Medytox alleged violation of Section 337 based on the importation into the U.S., the sale for importation, and sale within the U.S. of certain botulinum toxin (botox) products by misappropriation of trade secrets, and theft and conversion. Medytox alleged that respondents Hugel, Inc.’s and Hugel America, Inc.’s botox product was derived from a stolen physical sample of its Clostridium botulinum bacteria strain. Clostridium botulinum is used to produce botulinum toxin, and various strains exist. Medytox withdrew its misappropriation of trade secrets claim during the investigation.

Elements of a Theft and Conversion Claim Under Section 337

In a Section 337 investigation based on non-statutory acts, a uniform federal standard is applied to determine whether specific conduct constitutes “unfair methods of competition” or “unfair acts” in violation of Section 337. (See the Federal Circuit’s 2011 decision in TianRui Grp. Co. v. Int’l Trade Comm’n.) To determine a uniform federal standard for claims ordinarily arising out of state law, the ITC often applies the Restatements of Law. Here, ALJ Moore specifically relied on the Restatement (Second) of Torts to set forth the standard for a claim of theft and conversion in his Initial Determination, holding that two elements must be shown: (1) a possessory right (e.g., ownership) in property; and (2) the exercise of wrongful dominion over that property to the exclusion of those rights. The Commission confirmed this standard.

Applying this standard to the facts in the present investigation, the Commission held that the relevant question was whether Medytox had proven by a preponderance of the evidence that Hugel converted Medytox’s property. The Commission found that Hugel did not convert Medytox’s current strain or a genetically identical strain.

The Commission also found that Hugel did not steal a mixed lineage culture that contained the ancestor of Medytox’s strain. Medytox’s theory of conversion revolved around Hugel’s co-founder allegedly taking a sample of Medytox’s strain when visiting Medytox’s CEO’s laboratory in 2001. But Medytox lacked direct evidence showing ownership of a mixed lineage culture at the time of the alleged conversion. Even if Medytox could establish ownership of a mixed lineage culture, the Commission held that Medytox failed to prove that Hugel exercised wrongful dominion over that culture due to lack of credible evidence.

Takeaways

A theft and conversion claim can provide the basis for a violation of Section 337. The Commission’s recent decision underscores the ITC’s statutory authority under Section 337 to investigate a broad range of unfair methods of competition and unfair acts in the importation and sale of articles into the United States. It will be interesting to see what other state law claims of unfair competition and unfair acts support a violation of Section 337.