American companies are more vulnerable than ever to trade secret misappropriation from outside our borders. The following are common problems:
Fortunately, Americans have more options than ever for enforcing trade secret rights against foreigners. U.S. courts, administrative agencies, and extrajudicial remedies all protect American trade secret owners’ rights. Avenues for enforcement of trade secret rights against foreign wrongdoers include the following:
The DTSA governs misconduct occurring outside the United States in two situations: “(1) the offender is a natural person who is a citizen or permanent resident alien of the United States, or an organization organized under the laws of the United States or a State or political subdivision thereof; or (2) an act in furtherance of the offense was committed in the United States.” 18 U.S.C. § 1837.
The first scenario—an action against a U.S. citizen, permanent resident alien, or entity—can be shown from proof of country affiliation. The second scenario—requiring an act in furtherance in the U.S.—has spawned a great amount of litigation itself. More than a dozen court decisions have evaluated whether the requisite “act in furtherance” was committed in the United States—providing guidance on what meets this standard.
While the DTSA does not define the governing phrase “act in furtherance,” case law informs the meaning of an “act in furtherance of the offense” occurring in the United States:
Cases establishing an “act in furtherance” often fall into one of four categories:
a. Accessing U.S. servers. Downloading trade secrets from the owner’s U.S. servers or storing the stolen trade secrets on U.S. servers can meet the test.
b. In-person contacts. Visits by the wrongdoer to the U.S. in connection with the overall theft—such as meeting with recruits, vendors, suppliers, or partners in the U.S.—can constitute an act in furtherance.
c. Patent filings. Filing for U.S. patent protection on the stolen trade secrets using U.S. patent agents can qualify as an act in furtherance.
d. U.S. commerce. Selling or marketing products or services derived from or embodying the trade secrets in the U.S. can serve as an act in furtherance.
Courts finding an inadequate showing of an “act in furtherance” do so for numerous reasons:
a. No act in the U.S. In many cases, plaintiffs fail to allege any act in furtherance occurring in the U.S., or plaintiffs fail to show that a given activity, such as accessing servers, actually occurred in the U.S.
b. Timing. Courts will reject “acts” taking place before the operation is under way or after the operation is fully completed.
c. Insufficiently related acts. Some plaintiffs fail to plead a sufficient connection between the alleged U.S. act and the foreign misappropriation.
d. Damages. Courts have rejected arguments that damages in the United States constitute part of the offense.
In view of the importance of pleading an act in furtherance of misappropriation in the United States, some courts allow jurisdictional discovery on the issue before ruling on the matter.
The EEA provides criminal liability for theft of trade secrets and conspiracies or attempts to steal trade secrets. 18 U.S.C. §§ 1831–1837. It is a federal crime to steal trade secrets for the benefit of a foreign government or for the benefit of anyone other than the trade secret owner.
The extraterritorial reach statute discussed above in relation to the DTSA—18 U.S.C. § 1837—governs EEA cases as well. Thus, federal prosecutors can initiate criminal proceedings based on foreign misappropriation either (1) if the offender is a natural person who is a citizen or permanent resident alien of the United States, or an organization organized under the laws of the United States or a State or political subdivision thereof, or (2) if an act in furtherance of the offense was committed in the United States.
Case law interpreting “act in furtherance” in section 1837 in criminal cases is limited. Acts in furtherance have included meetings in the U.S. for recruiting or purchases relating to the misappropriation, contracting in the U.S. in connection with the misappropriation, and electronic communications with the U.S. The discussion above regarding case authorities interpreting “acts in furtherance” under the DTSA likely will have some influence on courts’ interpretation of the same statute in EEA cases.
The ITC—well known for adjudicating patent disputes—also hears investigations for trade secret misappropriation. In bringing a trade secret dispute to the ITC, a trade secret victim can seek an importation ban of products derived from or made using the stolen trade secrets. Thus, the ITC can serve as a powerful forum for American businesses facing foreign misappropriation of trade secrets.
The ITC has the authority to block the importation of products made using misappropriated trade secrets through an exclusion order. The ITC also can issue a cease-and-desist order blocking further distribution, marketing, or sale of any offending merchandise already in the United States. 19 U.S.C. § 1337.
The ITC can preside over an investigation of trade secret misappropriation even if the wrongdoing occurred entirely outside the United States. TianRui Grp. Co. v. Int’l Trade Comm’n, 661 F.3d 1322 (Fed. Cir. 2011). In TianRui, the Federal Circuit confirmed that the ITC’s authority extends to hearing trade secret matters in which the entire wrongdoing occurred abroad.
International trade secret disputes often get heard in arbitration forums in the United States. Cases of trade secret theft by joint venturers, collaborators, corporate partners, and foreign employees can all end up in arbitration through contractual arbitration clauses. International arbitration forums include the International Centre for Dispute Resolution (the international division of the American Arbitration Association, known as the ICDR) and the International Chamber of Commerce International Court of Arbitration (ICC). American trade secret holders should consider using arbitration clauses when entering into contracts that call for disclosing trade secrets. For model arbitration clauses providing for ICDR or ICC arbitration, see the ICDR’s Clauses webpage or the ICC’s Arbitration Clause webpage. Companies also can negotiate for a U.S. location as the contractually identified place of arbitration.
Two extrajudicial remedies can aid American businesses in combatting foreign trade secret misappropriation in appropriate cases:
Both of these remedies require the U.S. government’s willingness to intervene to assist victims of trade secret misappropriation.
When the government places a company on the “Entity List,” the wrongdoer is banned from acquiring exports of U.S.-origin items. The Department of Commerce administers the Entity List as part of the Export Administration Regulations. The victim approaches the End-User Review Committee, whose members are drawn from the Departments of Commerce, State, Defense, Energy, and, at times, Treasury, requesting that a foreign wrongdoer be added to the Entity List. The End-User Review Committee can add entities to the Entity List where there is “reasonable cause to believe, based on specific and articulable facts, that the entity has been involved, is involved, or poses a significant risk of being or becoming involved in activities that are contrary to the national security or foreign policy interests of the United States. . . .” 15 C.F.R. § 744.11(b). This can be shown by theft of American trade secrets in certain cases. For example, in 2018, the Department of Commerce invoked the Entity List and restricted exports to Fujian Jinhua Integrated Circuit Company, Ltd. (Jinhua) of China. Jinhua faces criminal and civil litigation in California for the alleged misappropriation of dynamic random-access memory (DRAM) technology from an American semiconductor manufacturer.
If the government names a misappropriator on the SDN List, then U.S. persons are prohibited from engaging in transactions with the wrongdoer. A victim can contact the U.S. Department of the Treasury’s Office of Foreign Assets Control to request that a foreign wrongdoer be named to the SDN List for engaging in significant malicious cyber-enabled activities. U.S. persons are prohibited from engaging in any transactions with foreign wrongdoers named to this list, and non-U.S. persons who engage with the foreign wrongdoer in significant transactions (including investments or major deals or partnerships) can incur sanctions for doing so. This remedy can apply in cases of trade secret misappropriation performed through malicious cyber-enabled activities that threaten the national security, foreign policy, or the economic health or financial stability of the United States.
In the last five years, trade secret owners have faced increasing threats of misappropriation from foreign actors. During the same period, though, the tools available to combat foreign misappropriation have greatly improved and expanded. The 2016 passage of the DTSA has proven a game changer in international trade secret litigation. At the same time, expanded use of the ITC and international arbitration have helped trade secret victims of foreign wrongdoing obtain relief in the United States.
