The Defend Trade Secrets Act reaches foreign conduct

In January, a federal court ruled that the Defend Trade Secrets Act (DTSA), which provides a federal cause of action for trade secret misappropriation, applies extraterritorially—i.e., to acts of misappropriation occurring outside of the United States. The ruling is a double-edged sword: domestic victims of trade secret misappropriation have a new avenue for recovering damages in the United States, but international actors face new exposure to domestic lawsuits alleging misconduct occurring in other countries.

 

The DTSA’s foreign reach matches that of the Economic Espionage Act of 1996.

 

In Motorola Solutions, Inc. v. Hytera Communications Corp.,[1] the Northern District of Illinois considered an issue of first impression: whether the DTSA can support a civil action rooted, at least in part, on misconduct occurring outside of the United States. Although the DTSA is silent on the issue, Congress placed the DTSA’s provisions within the broader statutory framework of the Economic Espionage Act of 1996 (EEA), and the EEA contains an express extraterritoriality provision. Specifically, Section 1837 of the EEA authorizes extraterritorial application if one of two prongs is satisfied: (1) the offender is a citizen or permanent resident of the United States or an entity organized in the United States, or (2) “an act of furtherance of the offense was committed in the United States.” The court ruled that Section 1837’s standard applies to civil claims arising under the DTSA.

 

Any domestic use, acquisition or disclosure could provide a basis for extending the DTSA to foreign conduct.  

 

Applying its ruling to the facts before it, the court further concluded that Section 1837’s second prong was satisfied where defendants used the trade secrets domestically by advertising, promoting and marketing products embodying the trade secrets “at numerous trade shows.” Notably, the court did not consider how much domestic use is required to satisfy the second prong, opening the door to an argument that even nominal domestic use is enough to extend the DTSA to foreign conduct. The court also hinted, but did not expressly rule, that other types of acts committed in furtherance of a trade secret misappropriation—i.e., an acquisition or disclosure—could also satisfy the standard.

 

Other courts may adopt a different approach but reach the same conclusion.

 

Recognizing it was writing on a blank slate, the court also considered whether the DTSA would apply to foreign conduct in the absence of Section 1837. The court concluded that it would. Citing Supreme Court precedent, the court noted that a statute may apply extraterritorially if conduct “relevant” to the statute’s “focus” occurred in the United States. The court found that the DTSA’s “focus” is on remedying trade secret misappropriation. Accordingly, under this alternative standard, the DTSA applies outside of the United States where conduct relevant to the act of misappropriation—acquisition, disclosure or use—occurred within the United States. The court found that the defendants’ use of the trade secrets at domestic trade shows would satisfy that alternative standard.

 

The court’s alternative ruling is noteworthy because most courts have not yet considered whether the DTSA has extraterritorial reach, there is no national consensus, and the Motorola Solutions opinion is not binding on other courts. When other courts do take up the issue, however, they will most certainly look to Motorola Solutions for guidance. Even if those courts disagree as to whether Section 1837 applies to the DTSA, they may find thealternative analysis persuasive and apply the DTSA to foreign conduct on that basis. Until appellate courts decide the issue with binding precedent, plaintiffs seeking extraterritorial application of the DTSA should raise arguments under both standards (and, by the same token, defendants opposing extraterritorial application must prepare to defend against both standards).   

 

Companies operating overseas should consider taking proactive defensive measures.

 

In the wake of Motorola Solutions, companies operating outside of the United States should consider taking defensive measures to reduce their risk of exposure to trade secret litigation in the United States. Defensive measures might include educating foreign employees about the nature of trade secret information and updating onboarding procedures to alert new employees to the fact that they may possess third-party trade secret information obtained while working for a former employer. Companies may also consider adopting clear policies in a policy manual or in employment agreements to prevent employees from using or disclosing such information. By doing so, companies may reduce the risk of actual or perceived trade secret misappropriation and avoid costly litigation in the United States.

 

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The DTSA remains largely unexplored only four years after its enactment. As new developments arise, including new rulings on the DTSA’s extraterritorial reach, look for additional updates from DLA Piper’s Technology sector group.