Extraterritorial Application of the Defend Trade Secrets Act

Can you be sued for misappropriation of trade secrets in the U.S. based on foreign activities?

U.S. courts are taking an increasingly broad view of the scope of U.S. trade secret law, and have allowed trade secret cases to proceed even if plaintiffs only allege a generic or small connection to U.S. activities. Generally, in the U.S. legal system, there is a presumption that U.S. law only applies domestically and "does not rule the world." Microsoft Corp. v. AT & T Corp., 550 U.S. 437, 454 (2007). The Defend Trade Secrets Act ("DTSA"), however, explicitly provides a cause of action when the defendant 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 "an act in furtherance of the offense was committed in the United States."18 U.S.C.A. § 1837; cf. ITC Litigation: Introduction to Trade Secret Protection at the ITC.

What Is "an Act in Furtherance of the Offense"?

Courts have broadly interpreted "an act in furtherance of the offense" to include activities such as sending email to recipients in the U.S., attending U.S. trade shows, recruiting U.S. employees, and meeting with vendors in the U.S. (for example, to buy equipment to use in a foreign country). Loss of U.S. customers or revenues, however, are not acts "in furtherance of the offense."

A court in the Northern District of Illinois recently allowed a DTSA claim to proceed even though the alleged acts of misappropriation occurred entirely outside the United States. In that case, the plaintiffs alleged that a foreign company hired three engineers from plaintiffs' foreign office and that they stole plaintiffs' trade secrets and source code. Because defendants had advertised, promoted, and marketed products embodying the allegedly stolen trade secrets at trade shows in the U.S., the court found that defendants "used" the alleged trade secrets domestically, and such domestic use was sufficient to support a DTSA claim.

The Northern District of California similarly has also allowed DTSA claims to proceed even when all alleged misappropriation of trade secrets occurred outside the U.S. Similar to the Illinois case, the plaintiff in this case alleged that defendants induced plaintiff's overseas employees to leave plaintiff, steal trade secrets, and deliver those trade secrets to defendants. The only U.S. activities alleged were that the defendants sent a delegation of executives to California to hire skilled engineers and purchase manufacturing equipment to carry out overseas manufacturing plans of products containing the trade secrets at issue. The court found that the defendants' California activities, despite not themselves misappropriation, constituted acts that were "in furtherance of" their overseas misappropriation of trade secrets. As such, the DTSA claims were allowed.

Is Alleging Domestic Damages Sufficient to Support a DTSA Claim?

Alleging damages in the U.S. alone is not enough for a DTSA claim to survive a motion to dismiss because damages are not part of the offense itself. In a Middle District of Florida case, even though one defendant attended a trade show in the U.S., the complaint contained no allegations suggesting that the defendants attempted to recruit an employee from the U.S., acquired the alleged trade secrets in the U.S., or used the alleged trade secrets in the U.S. The DTSA claims were all based on overseas operations and employees. While the complaint did allege that one U.S. company lost revenues because of the misappropriation, the court dismissed the DTSA claim, explaining that damages resulting from the misappropriation do not constitute part of the offense itself.

Damages alone may not be enough, but not much more is needed to survive a motion to dismiss. For instance, after acknowledging that alleging only domestic harm cannot support an actionable DTSA claim, an Eastern District of Texas court held that generic allegations, such as "by using . . . [plaintiff's] trade secrets, [defendant] has committed acts in the State of Texas and the United States," were sufficient to meet the plausibility standard.

Takeaways

U.S. federal courts have been broadly interpreting the extraterritorial application of the DTSA and have allowed DTSA claims based on extraterritorial misappropriation to move forward. Such practice has strengthened the protection of U.S. trade secrets, and provided U.S. trade secrets owners with domestic venues to enforce their rights against foreign entities and activity.

Authors: Autumn Wu, Katie Prescott