Trade Secrets Litigation Concerning Foreign Acts.

• Author: Counts, Thomas A.

ACTS of trade secrets misappropriation occur both domestically and internationally, but the international portion of that theft is a growing concern to U.S. interests. The annual cost to the U.S. economy of intellectual property theft is estimated to have grown to at least $225 billion and may even approach $600 billion annually. (2) Actors hailing from countries in the Asia-Pacific region, particularly China, commit a majority of this theft. (3) Through a mix of state and federal laws, U.S. courts are well-suited to address purely domestic disputes, as well as complex international disputes involving issues of jurisdiction, foreign discovery, choice of law, and criminality. But when the misappropriation of U.S. trade secrets interests occurs entirely overseas and does not touch the United States, the path for aggrieved parties is less clear. In such circumstances, courts must assess if U.S. trade secrets laws apply extraterritorially.

1. Extraterritorial Limits of Defend Trade Secrets Act Claims

   All but two states have enacted trade secret laws adopted from the Uniform Trade Secrets Act ("UTSA"). Although the UTSA was intended to harmonize disparate trade secret laws among the states, due to varying statutory language, interpretations, and application across the states, this harmonization has been far from perfect, and these laws have fostered forum shopping and uncertainty among businesses. For example, while many states agree that the state-enacted UTSA broadly preempts state common law claims, (4) the scope of that preemption varies dramatically from state to state. (5) In 2016, Congress passed the Defend Trade Secrets Act ("DTSA"), which amended Chapter 90 of Title 18, "Protection of Trade Secrets," to provide a federal civil cause of action for the misappropriation of trade secrets, thereby streamlining a medley of state civil statutes. Title 18 had been previously added to Chapter 90 by the Economic Espionage Act of 1996 ("EEA"), which criminalized the theft of trade secrets and conspiracies or attempts to steal trade secrets. While the EEA already had broad trade secret definitions and other language modeled from the UTSA, it did not provide a private civil action for aggrieved parties. The DTSA added a federal civil cause of action, ex parte seizure provisions, and whistleblower immunity to Chapter 90, while also relying on some pre-existing language of the EEA. This continued reliance on the EEA is potentially critical to the application of the DTSA to foreign acts outside the United States.

   The DTSA applies to any misappropriation of trade secrets "for which any act occurs on or after" its effective date, May 11, 2016. (6) The DTSA defines "misappropriation" as (a) "acquisition of a trade secret" by a person who knows or should know the secret was improperly acquired or (b) "disclosure or use of a trade secret of another without express or implied consent...." (7) The DTSA broadly protects trade secrets related to a product or service used in, or intended for use in, interstate or foreign commerce, (8) and largely relies on the pre-existing definition of trade secrets from the EEA. (9) With respect to the potential applicability of the DTSA to conduct that occurs outside of the United States, the DTSA's statutory language is relatively silent. However, unlike the DTSA, the EEA is specific on its extraterritorial reach. Section 1837 of the EEA, "[applicability to conduct outside the United States" provides:

   This chapter also applies to conduct occurring outside the United States if--

   (1) the offender is a natural person who is a citizen or permanent resident alien of the United States, or

   an organization organized under the laws of the United States or a State or political subdivision thereof; or

   (2) an act in furtherance of the offense was committed in the United States. (10)

   The EEA reaches two groups. First, the criminal offenses of the EEA will apply if the offender is a citizen or permanent resident alien of the United States or an organization under the laws of the United States. These U.S. entities may be held liable for criminal trade secret activities committed entirely outside the United States. Second, the EEAs criminal provisions will apply to foreign persons and organizations if some act in furtherance of the offense takes place on U.S. soil. (11)

   Although there is currently no case law interpreting the "act in furtherance" requirement under the EEA, this provision could conceivably apply to any individuals or entities that direct a minor act toward the U.S., including (i) emailing with another party in the U.S., (ii) conducting an interview of a potential lateral employee, a contractor, or a consultant to the company with U.S. connections, or (iii) engaging in a contract with a U.S. entity. For example, in United States v Kolon, the United States indicted Kolon under the EEA based on plethora of alleged overseas activities, where the primary jurisdictional hooks, outside of a sting operation, largely concerned emails and phone calls directed at the Eastern District of Virginia. (12) In another EEA case involving Chinese defendants, extraterritorial jurisdiction was predicated on emails, Skype chats, and other activity directed from China, including conduct that caused the use of stolen software in the United States. (13) Activities like these that have only the slightest nexus to the United States are often viewed by U.S. authorities as sufficient to support jurisdiction over criminal [section] 1832 theft of trade secrets claims. Section 1837 of the EEA therefore provides some hook by which overwhelmingly foreign criminal trade secrets activity can fall within U.S. prescriptive or legislative jurisdiction. (14) Less clear, however...