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
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.…
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.…
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.…
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.…
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.…
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.…