Powerful Remedies Against Trade Secret Misappropriation Abroad Appear Here to Stay
It has now been two years since a U.S. district court issued a ruling providing an additional avenue for U.S. trade secrets owners to take legal action against alleged misappropriation abroad. The decision in the Northern District of Illinois case, Motorola Solutions Inc. v. Hytera Communications Corp. LTD, made foreign companies take notice. It held that the Defend Trade Secrets Act of 2016 (DTSA) permits U.S. trade secret owners to seek civil remedies for acts of misappropriation that occurred abroad—including the recovery of the defendants’ profits on the sale of products incorporating the misappropriated trade secrets anywhere in the world.
Since that pivotal decision was issued, several other district courts have upheld DTSA’s extraterritorial reach in civil law. Trade secret owners now have at their disposal a powerful tool to combat international trade secret theft in the U.S. civil court system.
Prior to the DTSA’s enactment in May of 2016, trade secret owners facing unfair competition by foreign companies who misappropriated trade secrets abroad could obtain civil relief against such theft in the United States through the U.S. International Trade Commission (ITC). The case could be pursued if products incorporating the stolen trade secrets were being imported and sold in the United States. The trade secret owners also needed to meet special jurisdictional requirements, such as a showing that there exists a U.S. industry that would be destroyed, substantially injured, or prevented from forming as a result of the unfair act, and a specific injury (or threat thereof) to the domestic industry.
While pursuing trade secret claims in the ITC has several advantages—such as proceeding to trial in less than a year and dispensing with the need to prove there is personal jurisdiction over the respondents—an ITC proceeding has one major shortfall: the ITC can only grant an exclusion order barring the importation of the offending products into the United States. The ITC cannot award monetary damages based on domestic or foreign sales, or issue injunctions to stop continuing acts of misappropriation occurring outside of the United States.
Enter the DTSA. The DTSA—which also applies to any U.S. entity, citizen, or permanent resident alien who misappropriates trade secrets—provides several powerful remedies that can be imposed on foreign defendants even where the alleged acts of misappropriation occurred outside the United States as long as “an act in furtherance of” the trade secret misappropriation took place in the United States. These remedies include the imposition of an injunction, disgorgement of defendants’ worldwide profits on the sale of goods and services embodying the trade secrets, the trade secret owner’s past damages, imposition of an on-going royalty on future goods sold, punitive damages, and/or attorneys’ fees.
In the Motorola case, the defendants were found liable to Motorola to the tune of at least $543.7 million dollars. In most cases, the district courts’ ability to impose these remedies on foreign defendants will turn on whether “an act in furtherance of” the trade secret misappropriation took place in the U.S.
Federal district courts have now had a couple of years to develop a body of law interpreting what it means to commit “an act in furtherance of” trade secret misappropriation in the U.S. Noting that the misappropriation of trade secrets can include their improper acquisition, disclosure or use, district courts have ruled that “an act in furtherance of” trade secret misappropriation includes any of the following:
- Accessing computer servers or other information located in the U.S. (even if the person accessing the servers was located outside the U.S. and even if the person accessing them was a third party);
- Marketing, promoting, offering to sell, or selling goods or services that embody the trade secret (even if done through a foreign-based website as long as the products can be viewed and purchased by U.S. customers);
- Employing the trade secret in manufacturing or production;
- Relying on the trade secret to assist or accelerate research and development;
- Soliciting customers through use of information that is trade secret;
- Displaying products embodying the trade secret at trade shows;
- Communicating (via telephone, virtual or in person meetings, or correspondence) with U.S. based employees to learn about the trade secret;
- Terminating a joint venture following a misappropriation without revealing the true reasons for the termination;
- Refusing inspections or concealing the use of the stolen trade secret;
- Disclosing the trade secret to a third party located in the U.S.;
- Negotiating a Non-Disclosure Agreement in the U.S. in order to access and misappropriate the trade secret; and
- Working or consulting in the U.S. with a party accused of receiving and using misappropriated trade secrets (akin to conspiracy).
The ability of a trade secret owner to haul foreign defendants to U.S. courts where they could be exposed to injunctions, monetary damages and broad discovery rules should serve as discouragement to those who seek to compete unfairly, and help preserve or restore the trade secret owner’s competitive edge in an increasing global economy.