One of the primary arguments for enacting the Defend Trade Secrets Act (DTSA) in 2016 was the perceived need for the protection of the trade secrets of U.S. companies abroad. These issues received significant media attention with the focus far and away on China; by way of example, 60 Minutes cited the Justice Department as saying “the scale of China’s corporate espionage is so vast it constitutes a national security emergency, with China targeting virtually every sector of the U.S. economy, and costing American companies hundreds of billions of dollars in losses — and more than two million jobs.” A consensus emerged that existing civil trade secret remedies at the state court level were inadequate. These concerns led to calls for a robust federal statute that would provide a civil remedy empowering federal courts to assert their jurisdiction over parties outside the United States. An important decision issued by the U.S. District Court for the Northern District of Illinois last year, Motorola Solutions v. Hytera Communications Corp., 2020 U.S. Dist. LEXIS 35942 (N.D. Ill. Jan. 31, 2020), paved the way for other federal courts over the past year to exercise jurisdiction over international actors and international conduct under the DTSA. This blog post summarizes these recent decisions.
Background: In Motorola Solutions, Motorola and its Malaysian affiliate sued Hytera Communications Corporation Ltd., Hytera America, Inc. and Hytera Communications America (West), Inc. after they hired engineers from Motorola’s Malaysian office and allegedly took “thousands of [Motorola’s]’ technical, confidential documents,” and then used that information to invent a radio “that is functionally indistinguishable from [Motorola’s] radios.” Motorola’s claims were brought under the DTSA, the Illinois Trade Secret Act and the Copyright Act. The defendants argued that none of the statutes had extraterritorial effect and that any of the potential damages should be confined solely to the “domestic applications of the respective statutes.” Motorola argued that the court should exercise jurisdiction over this dispute under the DTSA, even though it happened in Malaysia “either because the statutes apply extraterritorially or because the conduct being regulated by the statutes was domestic in this case … .”
The Northern District of Illinois applied a two-step framework used by the U.S. Supreme Court in RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2101 (2016), to determine whether the DTSA can be applied extraterritorially. Under that test, a court is first required to determine “whether the presumption against extraterritoriality ‘has been rebutted – that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially.’” This step includes a presumption against extraterritoriality, consistent with underlying canons of statutory interpretation. If the first question is not met, the court “determines whether the case involves ‘a domestic application of the statute.’” In determining this second question, the court will look at the focus of the statute. “If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad; but if the conduct relevant to the focus occurred in a foreign country, then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U.S. territory.”
Focusing on the DTSA, the court recognized that the DTSA had amended parts of the Economic Espionage Act of 1996 (“EEA”). Thus, the court realized that because Congress was “creating a private right of action in the statutory chapter,” rather than changing “an existing interpretation of the EEA,” the “DTSA should be read as a cohesive whole.” Reading the act as a whole, the court saw that §1837 of the EEA allowed the EEA to apply to conduct that occurs outside of the U.S. Because §1837 has a broad application to “this chapter,” then §1836 which contains the DTSA, falls within §1837’s confines. Thus, the court found that the DTSA “may apply extraterritorially in a private cause of action if either of the requirements of Section 1837 are met.”
The DTSA claim asserted by the plaintiff ultimately resulted in a $700+ million award to the plaintiff.
Other Courts Follow the Motorola Ruling: Other federal courts throughout the country have applied the holding and reasoning of Motorola, relying on the interpretation of §1837’s “in furtherance” requirement. In Medcenter Holdings, Inc. v. WebMD Health Corp., No. 1:20-cv-00053 (ALC), 2021 U.S. Dist. LEXIS 59796 (S.D.N.Y. Mar. 29, 2021), the U.S. District Court for the Southern District of New York found that the defendants in that case–who conducted meetings, negotiated a non-disclosure agreement, and engaged in consulting work in the United States–committed acts “in furtherance” of an offense, even though those actions were not elements of the trade secret violation. This ruling ultimately extended the DTSA’s reach to trade secret misappropriations that primarily occurred in Argentina.
Similarly, in MedImpact Healthcare Sys. v. IQVIA Inc., No. 19cv1865-GPC(LL), 2020 U.S. Dist. LEXIS 155996 (S.D. Cal. Aug. 27, 2020), the U.S. District Court for the Southern District of California held that accessing servers and coordinating communications in the United States regarding trade secret misappropriation are also acts “in furtherance” under §1837. The court found that while acts that occur “before the operation is underway or after it is fully completed” are not “in furtherance” of the alleged offense, actions that “manifest that the [offense] is at work” are sufficient.
In perhaps the potentially broadest interpretation of the extraterritorial application of the DTSA, the U.S. District Court for the Western District of Washington found that an act “in furtherance” need not be committed by the defendant itself. In vPersonalize, Inc. v. Magnetize Consultants, Inc., 437 F. Supp. 3d 860 (W.D. Wash. 2020), the court found that the DTSA “does not require the defendant to have committed such act” and held that an act committed through a though third-party satisfied the requirement. The court reached this result by focusing on the textual language of the statute and applying what it considered to be a reasonable interpretation (“First, the extraterritoriality provision of §1837(2) requires only that ‘an act in furtherance of the offense was committed in the United States.’ It pointedly (and the Court must assume intentionally) does not require the defendant to have committed such act.”)
The holding of Motorola has been followed by other district courts. The U.S. District Court for the Northern District of Illinois again followed Motorola, in Philips Med. Sys. (Cleveland), Inc. v. Buan, U.S. Dist. LEXIS 140744 (N.D. Ill. July 28, 2021) (finding that using an American company (also a defendant) providing design services and travelling to Illinois to work with engineers constituted plausible acts by defendants “in furtherance” of misappropriation) and in Inventus Power, Inc. v. Shenzhen Ace Battery Co., 2020 U.S. Dist. LEXIS 122347 (N.D. Ill. July 13, 2020) (holding that the “in furtherance” requirement was met when the allegedly stolen information originated in Illinois and was electronically transferred to the foreign defendant, who also marketed and sold products in the United States which involved the trade secrets). And the U.S. District Court for the Western District of North Carolina in Herrmann Int’l, Inc. v. Herrmann Int’l Eur., 2021 U.S. Dist. LEXIS 42277 (W.D.N.C. Mar. 6, 2021) (finding that allowing individuals in the United States to take an assessment that was the subject matter of trade secret litigation and disclosing trade secrets to a web developer in Florida met the “in furtherance” requirement), and the U.S. District Court for the Southern District of New York in Syntel Sterling Best Shores Mauritius Ltd. v. Trizetto Grp., Inc., 2021 U.S. Dist. LEXIS 75875 (S.D.N.Y. Apr. 20, 2021) (holding that, in addition to one defendant’s status as a U.S. corporation, the “in furtherance” requirement was met when defendant’s employees located in the United States downloaded plaintiff’s trade secrets) have upheld the DTSA’s extraterritorial reach.
However, one court has required that the nexus between the offense and the act have a stronger connection. For example, in ProV Int’l v. Rubens Dalle Lucca, No. 8:19-cv-978-T-23AAS, 2019 U.S. Dist. LEXIS 187060 (M.D. Fla. Oct. 29, 2019), the U.S. District Court for the Middle District of Florida found that attending a trade show and tendering a resignation in the United States were not “in furtherance” of a trade secret violation because the complaint did not allege a connection between the defendant’s actions and the alleged misappropriation. Additionally, the court noted that damages resulting from a misappropriation “do not constitute part of the offense itself” and therefore cannot alone meet the “in furtherance” requirement.
Takeaway: As these cases over the past 18 months illustrate, federal courts are willing to apply the DTSA to foreign parties who have taken actions that further acts of misappropriation. These decisions are an important first step in furthering the DTSA’s goal of protecting U.S. companies’ trade secrets that are misappropriated abroad.