When misappropriators use or profit from trade secrets abroad, foreign litigation may be challenging and provide for inadequate discovery, remedies, and trade secret confidentiality protections. The Sedona Conference’s “Framework for Analysis on Trade Secret Issues Across International Borders: Extraterritorial Reach” identifies means by which United States law can reach foreign parties, conduct, evidence, or harms, including: the Defend Trade Secrets Act and state trade secret statutes, which may allow litigants to pursue extraterritorial damages; Section 337 of the Tariff Act, pursuant to which the International Trade Commission can exclude products manufactured abroad; the Economic Espionage Act of 1996, which provides for criminal prosecution of misappropriation; and certain extrajudicial regulatory remedies. This article summarizes each of these options and provides recommendations for addressing trade secret misappropriation that involves foreign actors or activity.
The Working Group identifies the DTSA of 2016, a federal law that allows a trade secret owner to sue in federal court when its trade secrets have been misappropriated, as a key avenue to reach misappropriation that occurs abroad. The Working Group notes that, while Congress did “not include specific language in the DTSA as such authorizing extraterritorial reach of the DTSA,” the DTSA “will likely be interpreted to apply outside the borders of the United States.” Indeed, courts have found that the DTSA “may apply extraterritorially,” and that plaintiffs may obtain extraterritorial damages resulting from misappropriation. E.g., Motorola Sols., Inc. v. Hytera Commc’ns Corp., 436 F. Supp. 3d 1150, 1163, 1166 (N.D. Ill. 2020).
But to bring a DTSA claim relating to conduct occurring outside the United States, the trade secret owner must show (1) that the offender is a U.S. citizen/permanent resident alien or entity or (2) that “an act in furtherance of the [misappropriation] was committed in the United States.” 18 U.S.C.A. § 1837. The Working Group notes that courts have adopted two separate tests to determine if the “act in furtherance” is satisfied.
Some courts have said that there is a “relatively low bar for acts that are considered ‘in furtherance of the offense.’” Dmarcian, Inc. v. Dmarcian Eur. BV, No. 1:21-CV-00067-MR, 2021 WL 2144915, at *22 (W.D.N.C. May 26, 2021) (accessing plaintiff’s data located on servers in the United States and marketing the trade secrets to customers in the United States through defendant’s website was sufficient to establish acts in furtherance). But, as noted above, some courts may require allegations of acts in furtherance in the United States during the misappropriation itself to support DTSA claims.
State trade secret statutes may offer certain benefits over the DTSA even when dealing with misappropriation abroad. For example, state statutes may provide for a longer statute of limitations period (e.g., the DTSA’s period is three years, while the Illinois statute’s period is five years) or reach activity that occurred before the DTSA’s 2016 enactment.
But the Working Group notes that few decisions have tested the limits of state trade secret statutes’ extraterritorial reach. Courts are divided on the issue. For instance, in 2017, the Northern District of Illinois found in Miller UK Ltd. v. Caterpillar Inc., that the Illinois Trade Secrets Act (ITSA) does have extraterritorial reach. No. 10-CV-03770, 2017 WL 1196963, at *7 (N.D. Ill. Mar. 31, 2017). In Motorola Sols., Inc. v. Hytera Commc’ns Corp., however, the court disagreed, holding that “the ITSA does not have extraterritorial reach” and finding that “the statutory language [relied on by Miller] does not clearly express an intent by the legislature for extraterritorial reach of the ITSA.” 436 F. Supp. 3d 1150, 1170 (N.D. Ill. 2020). Similarly, in 2009, the Northern District of California held that “California law reaches extraterritorial transactions or conduct which cause an injury in California.” Applied Materials, Inc. v. Advanced Micro-Fabrication Equip. (Shanghai) Co., Ltd., No. C 07-05248 JW, 2009 WL 10692715, at *7 (N.D. Cal. Nov. 30, 2009). But in Cave Consulting Grp., Inc. v. Truven Health Analytics Inc., the court held that “[n]o legislative history suggests the Act was intended to have extraterritorial effect.” No. 15-CV-02177-SI, 2017 WL 1436044, at *6 (N.D. Cal. Apr. 24, 2017).
As the Supreme Court has held, however, even where there is no clear indication that a statute has extraterritorial reach, plaintiffs may nonetheless pursue a claim under that statute if the case involves “a domestic application of the statute.” RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2101 (2016). If the conduct relevant to the statute’s focus occurred in the relevant state, then the case involves a “permissible domestic application” of the statute, “even if other conduct occurred abroad.” Id. To determine whether a particular claim involves a domestic application of a statute, “Illinois courts consider whether the circumstances relevant to the claim are alleged to have occurred ‘primarily and substantially’ in Illinois.” Inventus Power, Inc. v. Shenzhen Ace Battery Co., No. 20-CV-3375, 2020 WL 3960451, at *8 (N.D. Ill. July 13, 2020) (citations omitted) (plaintiffs had “not demonstrated a likelihood of establishing that the misappropriation alleged in the complaint is actionable under the ITSA” where it appeared unlikely they could establish that “the relevant circumstances occurred ‘primarily and substantially’ in Illinois”).
Thus, a careful review of the law is necessary before relying on state trade secret statutes; some courts may require allegations that the misappropriation occurred primarily and substantially within the relevant state to apply that state’s statute.
The Working Group recognized that the International Trade Commission (ITC), governed by Tariff Act Section 337, offers an alternative to district or state court litigation where a trade secret owner seeks nonmonetary remedies for misappropriation abroad.
The Federal Circuit has made clear that Section 337 authorizes the Commission to apply domestic trade secret law to misappropriation that “entirely occurs in a foreign country.” TianRui Grp. Co. v. Int’l Trade Comm’n, 661 F.3d 1322, 1326-35 (Fed. Cir. 2011). Further, unlike patent, copyright, and trademark infringement claims brought under 19 U.S.C. § 1337(a)(1)(B-E), trade secret misappropriation claims brought under 19 U.S.C § 1337(a)(1)(A) do not require that a domestic industry relate to the intellectual property involved in the investigation. 661 F.3d at 1335; 19 U.S.C. § 1337(a)(2). Finally, while there have only been about 20 trade secrets ITC investigations in the last decade and violations have only been found in a quarter of them, those that concluded in violation findings resulted in lengthy exclusion orders from 10 to 26 years.
Thus, the ITC may provide an effective option for trade secret owners who are content with excluding misappropriating products from the United States.
In addition to civil litigation, the EEA provides for criminal prosecution and penalties (including possible restitution for victims) for trade secret misappropriation. The Working Group notes that the EEA offers several benefits.
But the EEA does not offer attorney fees, and prosecutors may choose to seek only prison time or criminal fines, rather than restitution. Further, use of the EEA requires U.S. authorities to agree that prosecution is appropriate; a federal prosecutor’s decision not to prosecute—or an ultimate finding of no criminal liability—may undermine any civil action a trade secret owner may wish to pursue. Thus, pursuing criminal prosecution under the EEA may be a good option for trade secret owners who have strong claims, but would benefit from the federal government’s broader access to discovery or the leverage afforded by a criminal investigation.
The Working Group identifies two regulatory remedies that have broader effect than the civil and criminal alternatives discussed above but require government intervention as well as a showing of potential harm to national security.
The first remedy, the Entity List, bans the wrongdoer from acquiring exports of U.S.-origin items if 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.” A complainant can contact the End-User Review Committee (composed of representatives from the Departments of Commerce, State, Defense, Energy, and Treasury) to request that an entity be added to the list. This remedy has been used successfully by U.S.-based semiconductor manufacturer Micron Technology, Inc. In 2018, the Department of Commerce added to the Entity List Fujian Jinhua Integrated Circuit Company, Ltd., which was accused of misappropriating from Micron DRAM technology that had importance to U.S. military systems.
The second remedy, the Specially Designated Nationals and Blocked Persons (SDN) List, prohibits U.S. persons from engaging in transactions with an entity that engaged in cyber-enabled activities that (a) are “reasonably likely to result in, or have materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States” and (b) have the purpose or effect of causing inter alia a significant misappropriation of trade secrets. A complainant can contact the Treasury’s Office of Foreign Assets Control to request that a foreign entity be added to the list.
These extrajudicial remedies may offer leverage against a misappropriator but again require U.S. authorities to agree to impose them, and do not offer damages or attorney fees.
The Framework offers trade secret owners a broad set of options to pursue remedies when at least some of the parties, conduct, evidence, or damages are outside the United States. The appropriate option—or combination of options—may depend on whether acts in furtherance of the misappropriation have occurred in the United States, the state in which those acts occurred, and the remedies that the owner is seeking. District or state court litigation may maximize damages and attorney fees. The ITC may maximize the chances of excluding misappropriating products that are imported from abroad. And criminal and regulatory remedies, to the extent U.S. authorities are willing to pursue them, may provide the best means of getting leverage against misappropriators who seek to evade civil litigation and enforcement mechanisms. Whatever combination of options a trade secret owner pursues, an informed approach improves the prospects of success.
