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.

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