The Defend Trade Secrets Act (“DTSA”), on its face, creates a private action in district court for misappropriation occurring abroad. Filing a DTSA claim in district court may in certain circumstances provide the best remedy for foreign trade secret theft over other alternatives such as filing a complaint with the International Trade Commission. But over
Defend Trade secrets Act
Extending US Trade Secret Law to Reach IP Theft in China: An ITC Lawyer’s Reply
Dave Bohrer’s recent post Extending US Trade Secret Law to Reach IP Theft in China discusses what to do when your company’s Chinese joint venture makes off with your trade secrets in China. The post suggests it may be possible to bring an action in US court extending either federal or state trade secret law extraterritorially to reach the misconduct in China.
In response to Dave’s post, I suggest that there is another, complementary alternative to a US-based civil action: bring a complaint asserting trade secret theft and unfair competition to the U.S. International Trade Commission (“ITC”) under Section 337 of the Tariff Act.
The ITC, despite its name, is a U.S. federal agency that operates as U.S. district court with a twist – extraterritorial reach to address unfair acts that take place entirely oversees, and in rem jurisdiction over Chinese respondents based on the importation of goods into the United States. The ITC cannot award damages but it can close the borders to goods from Chinese entities that steal trade secrets, effectively a national injunction. Your aggrieved U.S. client at least won’t find itself competing with its own purloined knowhow in the U.S. market. ITC cases are fast (18 months or less, soup to nuts) and furious (offering remedies with teeth that not only exclude unfairly traded goods, but which can bind U.S. distributors and retailers with cease and desist orders).
The ITC came into its own as a forum for litigating trade secrets with the TianRui case in 2008. In that case, employees from a Chinese-U.S. railway equipment joint venture departed and started a new Chinese company, using the stolen trade secrets. Soon the U.S. partner was facing U.S. imports of Chinese railways using the stolen technology. The ITC found, and the Federal Circuit affirmed, that the Commission had authority under Section 337 of the Tariff Act to apply U.S. trade secret law to bad actors and unfair acts that took place entirely in China. The Federal Circuit expressly held that “section 337 applies to imported goods produced through the exploitation of trade secrets in which the act of misappropriation occurs abroad.” In reaching this decision, the Federal Circuit effectively treated the Uniform Trade Secrets Act as federal common law and found the Commission’s determination to comply with basic trade secret principles. ITC findings of fact and law in “unfair acts” cases are preclusive and bind the district court, giving Complainants the option of a rapid one-two punch of an ITC exclusion order sealing the U.S. border from infringing goods, and then the possibility of walking into the district court for damages without relitigating the merits of the case.
Of particular note is the ITC’s determination in TianRui that “[t]he presumption against extraterritoriality does not govern this case.” In other words, a trade secret complaint investigated by the ITC avoids entirely what my colleague described in his earlier post as one of the more significant legal hurdles to extending US trade secret law to reach extraterritorial conduct.
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Extending US Trade Secret Law to Reach IP Theft in China
Engineers from your China subsidiary just joined a competing company which has begun using your trade secrets. Can you sue in the US and avoid the uncertainty and expense of seeking relief in a Chinese court? The answer is that both federal Defend Trade Secrets Act (DTSA) of 2016 and California’s version of the Uniform Trade Secrets Act (CUTSA), under the right circumstances, may be extended extraterritorially to reach misappropriation outside of the US.
Perhaps surprisingly, it may be harder to do this under the federal law, which expressly provides that it applies to conduct outside the US, than under the California law, which is silent on the subject. Let’s break this down.
Extraterritorial theft of trade secrets by insider employees or business partners in China is a significant problem as evidenced by the investigation in International Trade Commission cases Amsted v. TianRui (disclosure and use of US company’s trade secrets in China) [the 2011 Federal Circuit decision on appeal] and In re Certain Rubber Resins (same) [the 2014 ITC determination]. The problem reflects the reality of the current business environment, which is global and digital; technology owned by US-based companies is often shared with employees or business partners located outside of the US and it is not unusual for them to move between competitors.
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New Federal Trade Secret Law is Pro Employee Mobility and Rejects Inevitable Disclosure
Proposed legislation creating a federal cause of action for trade secret misappropriation is on the fast track to becoming law, as described in James Pooley’s excellent post What You Need to Know About the Amended Defend Trade Secrets Act [link], January 31, 2016 Guest Post, Patently-O. Referred to as the Defend Trade Secrets Act (“DTSA”), the legislation was favorably reported out of the Senate Judiciary Committee on January 28, 2016.
For those seeking to catch up on these developments, the recent posts and articles by Mr. Pooley and his colleagues are a great place to start learning the salient characteristics of the new law, including the rejection of the idea that an employee should be blocked from taking a new job based on the doctrine known as “inevitable disclosure.” The DTSA’s rejection of “inevitable disclosure” warrants a closer look; it means the DTSA embraces California’s robust policy favoring free mobility of employees between jobs. Let’s break this down.
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