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 a year-and-a- half after the enactment of the DTSA, are there any decisions applying the DTSA to foreign trade secret theft? Not so much.

The relevant hypothetical is one where a U.S. company’s business partner in China has stolen the U.S. company’s trade secrets, as shown in this animated video:

(This video was first presented at “Trade Secret Theft Occurring Overseas: The Long(er) Reach of the ITC,” Computer History Museum, Mountain View, CA, Oct. 10, 2017, a joint CLE by Merchant & Gould and Adduci, Mastriani and Schaumberg (hereafter referred to as  “Foreign Trade Secret Theft CLE”).

As proposed in the animation, bringing a claim in the International Trade Commission (“ITC”) to block imports that use the trade secrets is a viable and in some instances the best solution.  However, there are factors that favor bringing a misappropriation claim in district court.

An ITC remedy may not be available because, notwithstanding a bona fide threat that misappropriation will occur, misappropriation has not yet happened – it is threatened as opposed to actual, or, because the misappropriated  trade secret is source code or other intangible digital media that does not qualify as a “good” within the meaning of ITC rules.  Even if the ITC remedy is available, it does not allow recovery of money damages, requires intense and expensive factual development prior to filing the complaint, and imposes potentially difficult to prove domestic industry and injury requirements.

Foreign Trade Secret Theft CLE

Whether a district court action asserting the DTSA is a viable alternative hinges on the whether the DTSA has extraterritorial reach. There is a presumption that U.S. laws do not apply outside the U.S. unless Congress expresses a clear intent otherwise.  The language of the DTSA and its related legislative history manifest the requisite Congressional intent and therefore overcome the presumption.

Foreign Trade Secret Theft CLE

But so far there is little if any evidence in reported decisions of courts extending the DTSA to cover foreign conduct in reliance on the statute’s extraterritoriality provisions.

The DTSA was applied to extraterritorial conduct in T&S Brass and Bronze Works Inc v Slanina (D.S.C. 2017) because the defendants were citizens or permanent resident aliens of the U.S., thus satisfying section 1837 subpart (1).  Research has not disclosed any other case applying DTSA extraterritorially based upon the U.S. citizenship of the defendants.

Likewise, research has not disclosed any decision applying DTSA to conduct outside the U.S. because “an act in furtherance of the offense was committed in the United States” within the meaning of section 1837 subpart (2).  Nonetheless, there is compelling basis for arguing that where, as in the hypothetical, the misappropriation includes importing, marketing or selling in the U.S. goods made overseas using the stolen trade secrets, there is an “act in furtherance” justifying extension of the DTSA to reach the overseas theft and use of the trade secrets.  In VIA Technologies Inc v ASUS Computer International (N.D. Cal. 2015), the district court interpreted California’s version of the Uniform Trade Secret Act (“UTSA”) as allowing a claim for misappropriation based upon marketing in the U.S. goods made overseas that embody the trade secret.  Since the DTSA and state court statutes based on the UTSA are deemed coextensive, it is therefore highly likely that a district court would similarly interpret what is meant my misappropriation under the DTSA.

Foreign Trade Secret Theft CLE

(It is important to note that California’s version of the UTSA (“CUTSA”) was not given extraterritorial application in Cave Consulting Group Inc v Truven Health Analytics Inc, such that the actionable misappropriation under CUTSA like that alleged in VIA Techs. is limited to the misappropriation occurring in the U.S. (the marketing and selling of the goods in the U.S.) and excludes the misappropriation occurring outside the U.S. (the improper acquisition and use of the trade secrets by a foreign competitor). In comparison, under the DTSA, not just the misappropriation committed in the U.S. (importing and marketing of LETSA cars) but also the misappropriation occurring in China (the acquisition and exploitation of the ALSET trade secrets by LETSA), is actionable.  The U.S.-based misappropriation is “an act in furtherance” of LETSA’s overall misappropriation that supports the extraterritorial reach of the DTSA to the conduct occurring in China.)

There are instances where the comparative benefits of bringing a DTSA claim to address foreign trade secret theft in a district court as compared to the ITC favor bringing a DTSA claim – assuming a DTSA claim can overcome the presumption against extraterritorial application.  The language and legislative history of the DTSA are sufficient to overcome the presumption in certain instances (where the defendant is a U.S. citizen or where an act in furtherance of the offense has been committed in the U.S.).  Yet well over a year-and-a-half after enactment of the DTSA, there are few if any reported decisions recognizing the DTSA as a viable theory of recovery for foreign trade secret theft.

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. Continue Reading Extending US Trade Secret Law to Reach IP Theft in China: An ITC Lawyer’s Reply

Hidden Memory Card  (inspired by ABC's Designated Survivor, 1:9, "The Blueprint," aired Dec. 7, 2016)
Hidden Memory Card (inspired by ABC’s Designated Survivor, 1:9, “The Blueprint,” aired Dec. 7, 2016)

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. Continue Reading Extending US Trade Secret Law to Reach IP Theft in China

Although many may be asserted, quite often far less warrant protection
Although many may be asserted, quite often far less warrant protection

The question is whether it is possible to get a court to enter partial summary judgment before trial on some but not all of the trade secrets that the defendant is accused of stealing.

As discussed in the Sept 28 post, the answer is that this may not be possible if the lawsuit is filed in California state court.

But if the trade secret lawsuit is filed in federal court, the answer is yes.  In federal court, it is easier to weed out before trial alleged trade secrets that do not satisfy the legal requirements for protection.

Why should we care?  For each allegedly misappropriated trade secret that is allowed to be argued at trial, the costs incurred in either proving up or rebutting the claim run in the tens if not the hundreds of thousands of dollars spent on attorneys, experts and discovery, not to mention the significant time the court and the jury must devote to determining liability on each such claim.  In other words, the potential savings of time and money to all concerned (court, jurors, and parties) from taking fewer trade secrets to trial are huge. Also, settlement before trial is much more likely if the parties know in advance which trade secret claims will or will not be tried. Continue Reading You Can Get Partial SJ on Some But Not All Trade Secrets . . . In Federal Court

Jury trial on reasonable royalty? Courtesy Google Images
Right to jury trial on reasonable royalty damages differs depending on whether suit brought under DTSA or California version of UTSA

The new Defend Trade Secrets Act (DTSA) became law on May 11, 2016 and applies to any misappropriation that occurs on or after that date.

Although the DTSA creates a federal, civil remedy for trade secret misappropriation, it does not preempt state law.  This is going to encourage serious forum shopping, including, among other things, over the right to jury trial.

The federal law cedes to the jury the determination of all possible monetary damages claims.  In comparison, the version of the Uniform Trade Secrets Act (UTSA) adopted by California (CUTSA), while giving the jury the issues of lost profits and unjust enrichment, reserves for the trial judge the determination whether and to what extent to award reasonable royalty damages. Continue Reading Unlike California, New Federal Trade Secret Law Offers Right to Jury Trial on Reasonable Royalty Damages

Late yesterday, the House of Representatives joined the Senate in passing a sweeping new statute that creates a new federal civil cause of action for trade secret theft.  The new statute, called the Defense of Trade Secrets Act (DTSA), can be found here and is expected to be signed into law by the President within the next few days.

Where will we first see the effects of the new federal trade secret law?  Answer: in the hundreds (thousands?) of currently pending state court trade secret misappropriation cases.  Soon after the DTSA becomes effective there will be a significant increase in federal district court decisions being relied upon in state courts to explain and construe existing state trade secret statutes. Continue Reading Wave of Federal Trade Secret Decisions Soon to Hit State Courts

DTSA does not block employment based merely on inevitable disclosure (courtesy Google images)
DTSA does not block employment based merely on inevitable disclosure (courtesy Google images)

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. Continue Reading New Federal Trade Secret Law is Pro Employee Mobility and Rejects Inevitable Disclosure