Late on the night of March 19, 2018 (Beijing time), the United States International Trade Commission (ITC) decided to terminate the Section 337 antitrust investigation ("Antitrust Complaint") initiated by the plaintiff U.S. Steel ("USS") on the basis of the fact that Chinese iron and steel enterprises had colluded for fixed price and controlled production and export volume in violation of the Antitrust Law of the United States. After nearly two years of arduous defense, the investigation has ended with the complete victory of China's steel industry.
In the Section 337 Investigation, JT&N was selected as the leading law firm in responding to the lawsuit. It, together with American law firms, provided overall legal defense services for Chinese iron and steel enterprises, and served as the attorney of Baosteel, HBIS, and Maanshan Iron & Steel. About 40 lawyers from JT&N Beijing Head Office, JT&N Shanghai and JT&N Hefei formed a strong lawyer team to participate in the proceedings of the case. Looking back on the dribs and drabs in our response to the lawsuit over the past two years, we deeply feel that the victory of this lawsuit has not come easily.
Sudden Change in Situation
On April 26, 2016, USS filed a Section 337 Investigation indictment with ITC.
"Section 337 Investigation" is a quasi-judicial procedure for ITC to investigate the infringement of intellectual property rights and other unfair competition in import trade in accordance with the relevant provisions of Section 337 of the United States Tariff Act of 1930, and to decide whether the infringement has occurred and whether remedies should be taken.
In its indictment, USS accused Chinese carbon and alloy steel products ("Disputed Products") manufacturing or sales enterprises of unfair trade practices, and requested ITC to issue a General Exclusion Order, Limited Exclusion Orders ("Exclusion Orders") and Cease and Desist Orders.
The unfair trade practices proposed by USS consist of three aspects:
Antitrust charges against fixed price, output and export volume ("Antitrust Complaint");
Obtaining USS's trade secrets related to high-strength steel through hackers (the "Trade Secret Complaint"); and
Cooperate with iron and steel trading enterprises to forge the country of origin and exercise transshipment through third countries to circumvent anti-dumping and anti-bribery punitive tariff orders ("False Designation of Origin Complaint" or "FDO Complaint").
On June 2, 2016, ITC officially launched the investigation. In ITC's case-filing announcement, a total of 40 defendants were identified, including manufacturers, distributors, as well as the above-mentioned enterprises' related entities in Hong Kong or the United States. Among them, seven Chinese iron and steel enterprises, including Baosteel, HBIS, Shougang, Maanshan Iron & Steel, Ansteel, WISCO and Shagang, participated in the investigation. The Office of Unfair Import Investigations (OUII) under ITC of the United States also participated in the investigation as a party to the case. It is worth noting that OUII's proposition tends to support the views of USS in most cases, and those of the Chinese side in very few cases, which greatly increases the difficulty of responding to the investigation.
This Section 337 Investigation covered almost all of China's key iron and steel enterprises. Once the Section 337 Investigation verifies any of the above complaints as true, China's related iron and steel products will be imposed a permanent ban on entry into the United States. In addition, once China's iron and steel enterprises lose the lawsuit, other Chinese iron and steel products are likely to encounter the same investigation, and other countries outside the United States may follow the practice of the United States. China's iron and steel industry was facing a life and death battle, and all iron and steel companies concerned decided to spare no effort in responding to the lawsuit.
Trade Secret Complaint - Initial Victory
As far as the "Trade Secret Complaint" is concerned, the plaintiff initially attempted to accuse all Chinese iron and steel companies, including Baosteel, of stealing trade secrets. Upon several motions submitted by us, the judge of this case issued Order No. 26 on August 29, 2016, affirming that the Trade Secret Complaint were only related to one enterprise - Baosteel. Meanwhile, a separate procedure was set up to deal with the trade secret matters. Other defendant enterprises did not need to discover the evidence documents related to the trade secrets. This Order No. 26 greatly lightens the burden of the related iron and steel enterprises except Baosteel, thus helping Chinese side optimize their responding resources, concentrate their superior strength and strive for the final victory in respect of the Trade Secret Complaint.
Thereafter, after a series of complicated and challenging procedures, such as discovery of factual evidence and out-of-court evidence collection from the witnesses of both sides, with the joint efforts of Baosteel and the lawyers, USS finally abandoned, and offered a motion to withdraw, its Trade Secret Complaint on February 15, 2017. On February 22, 2017, the judge of this case issued Order No. 56, approving USG's motion to terminate the investigation related to the Trade Secret Complaint. On March 24, 2017, ITC decided not to review Order No. 56. This means that after more than ten months of efforts, the Chinese iron and steel enterprises led by Baosteel had won a complete victory over USS's unjustifiable accusation against Chinese iron and steel enterprises for "stealing their commercial and technological secrets" through hackers.
In the history of the US Section 337 Investigation, this is the first victory won by Chinese enterprises in trade secret cases.
FDO Complaint - Follow up the Initial Victory
On January 11, 2017, before the discovery of evidence was substantially completed, the judge of this case made a preliminary ruling regarding the FDO Complaint, supporting the motion of Chinese enterprises to terminate the FDO Complaint, and held that the plaintiff failed to bring forward the specific facts to prove the defendant's illegal act of false designation of origin, which did not meet the basic requirements of initiating a lawsuit under Section 337 Investigation. However, on February 27, 2017, ITC decided to review the preliminary ruling of the administrative judge. After the review, it decided to overturn the preliminary ruling, and requested the judge to proceed with the investigation into the FDO Complaint. This review decision gives USS the opportunity to continue its evidence discovery, reigniting their hope of obtaining the evidence of illegal act of the Chinese side through evidence discovery.
After more than four months of intensive work, such as discovery of factual evidence and testimony by enterprise witnesses and experts, seven Chinese enterprises successively filed timely motions as of July 18, 2017 to apply for a quick ruling to terminate the investigation into the false designation of origin. On October 2, 2017, the judge of this case issued Order No. 103 "Preliminary Decision on Approving the Defendant's Application for a Quick Ruling to Ascertain the Absence of the Illegal Act of False Designation of Origin", approving the quick ruling motions submitted by all the seven Chinese enterprises, finding that the plaintiff could not prove the existence of false designation of origin in violation of Section 337, and rendering a ruling to terminate the investigation into the false designation of origin and to lay aside the planned court trial.
The plaintiff, USS, had the right to apply for review of the judge's preliminary ruling before October 11, 2017. However, ITC did not receive any request from USS for review before the review deadline. Therefore, on November 1, 2017, ITC decided not to review the Order No. 103 issued by the judge of this case. This means that Chinese iron and steel enterprises had won a satisfactory, complete victory over the FDO Complaint. In particular, they had won the lawsuit by means of quick ruling motion, which had saved the huge costs of court sessions, trial preparation and after-court procedures, and had achieved very good social benefits and very ideal results.
Antitrust Complaint - Complete Victory
As for ITC's investigation under Section 337, we can hardly find a valid precedent to follow. Over the years, ITC has dealt with very few antitrust cases. In the past 50 years, there have been only 6 similar antitrust cases, and no antitrust cases have been tried since 1988.
As far as the "Antitrust Complaint" is concerned, due to the complexity and sensitivity of evidence discovery, the most advantageous and effective defense strategy the Chinese side could choose is to quote the Antitrust Law of the United States to prove that USS was not qualified to file the Section 337 antitrust charges.
On August 26, 2016, China submitted a motion to terminate the Antitrust Complaint filed by USS. After the full efforts of Chinese enterprises and Chinese and American attorneys, the judge of this case finally issued Order No. 38 "Preliminary Decision on Approving the Defendant's Motion to Terminate the Antitrust Complaint" on November 14, 2016, and decided to terminate the Antitrust Complaint. In the preliminary ruling opinion, the judge quoted a large number of opinions and grounds stated by the Chinese side in many legal opinions, fully supported the views and positions of the Chinese side, and preliminarily ruled that USS must justify its qualifications for prosecution by proving the essential elements of antitrust damage. However, the plaintiff's antitrust lawsuit was rejected because it failed to prove the essential elements of antitrust damage. The judge's initiative gave Chinese steel enterprises a taste of the joy of success in the first battle, greatly encouraged the confidence and determination of the responding parties, and also won valuable time for the victory over the "Trade Secret Complaint" and the "FDO Complaint" which were pending at that time.
Subsequently, on receiving the application from the plaintiff, ITC issued a notice on December 19, 2016, deciding to review the judge's Order No. 38 proclaiming the preliminary termination of the antitrust investigation, and held a hearing and oral debate in Washington on April 20, 2017. As ITC has no special limitation on the deadline of the final ruling, the final ruling of ITC review was delayed time and again. For nearly a year thereafter, the complaint remained in the ITC review process. Moreover, every adjustment of U.S. trade policy or change of committee members would increase the uncertainty of the case.
After a long wait and unremitting close dialogues, Chinese iron and steel enterprises finally got the good news of the victory over the antitrust lawsuit late on the night of March 19, 2018 Beijing time. ITC finally issued a notice to terminate the investigation into USS's the last complaint - Antitrust Complaint, and supported the claims filed by the Chinese side and the judge, while holding that USS was not qualified for prosecution due to its failure to prove the essential elements of antitrust damage.
This case is the first Section 337 Investigation initiated by the US against China's iron and steel industry. The antitrust investigation launched under Section 337 is the first one of its kind in recent 40 years.
This case is also one of the means of trade protection carried out by overseas competitors represented by American and European countries aiming at bringing a holistic hit to China's iron and steel industry.
The complexity, wide coverage, and difficulty of the case are rare to be seen. Under the grim situation of Sino-US trade friction and dialogue on the iron and steel industry, the case is of great strategic significance to China's iron and steel industry and even to China's overall economic development from the legal, economic and political dimensions.
The victory over the Section 337 Investigation case would not have been won without the guidance of the Chinese Ministry of Commerce and the organization and coordination of China Iron and Steel Industry Association, the solidarity of China's iron and steel industry, the positive efforts of the defendants and the full endeavors of all the lawyers.
Among those participating in the response to the Section 337 Investigation are partners Chen YANG, Yu TIAN, Zheng XU, Yazhou WU, Lin LI, Yunyan ZHANG, Haitao SHA, Ying ZHANG and Zhenyu ZHANG, as well as lawyers Wei ZHAO, Xian LI, Jingjing LIN, Ziyu ZHAO and Yue ZHANG.
[i] 1) Shanghai Baosteel Group Corporation, Baoshan Iron & Steel Co., Ltd., and Baosteel America, Inc. ("Baosteel"); 2) HBIS Group Co., Ltd., HBIS Group Hengstrip Company, and Hebei Iron & Steel (Hong Kong) International Trade Co., Ltd. ("HBIS"); 3) China Shougang Group, and China Shougang International Trade & Engineering Corporation ("Shougang"); 4) the defendant Maanshan Iron & Steel Company Limited and Maanshan Iron & Steel (Group) Holdings Co., Ltd. ("Maanshan Iron & Steel"); 5) Ansteel Group, Ansteel Group International Trade Corporation and Ansteel Group Hong Kong Co., Ltd. ("Ansteel"); 6) Wuhan Iron & Steel (Group) Corporation, Wuhan Iron and Steel Company Limited, and WISCO America Company Limited ("WISCO"); 7) Jiangsu Shagang Group Co., Ltd. and Jiangsu Shagang International Trade Co., Ltd. ("Shagang").