Protecting and Enforcing Your Trade Secrets in a Global Economy

In the interconnected, global business environment, trade secret information regularly crosses international boundaries, and trade secret misappropriation can occur anywhere in the world. Trade secret holders should thus familiarize themselves with the legal tools that can help protect and enforce their trade secrets worldwide.

Practical trade secret protection strategies for your global business

Trade secrets are a form of intellectual property (IP) generally recognized throughout the world. While each jurisdiction has its own definition of what “trade secrets” are, most require that the information alleged to be a trade secret meets the following three requirements:

1. Secret: The information is not generally known or readily ascertainable.
2. Value: The information has actual value or potential value arising from the fact that it is not generally known.
3. Reasonable measures to preserve secrecy: The owner of the information has taken reasonable steps to ensure that it remains secret.

Examples of trade secrets include technical information (e.g., algorithms, formulas, and manufacturing processes) and non-technical information (e.g., the identity of suppliers, pricing data, and sales strategies). Unlike other forms of IP, the law does not require trade secret owners to register them with a government entity to obtain protection. As long as the information meets the three requirements above, it qualifies as a trade secret.

What are “reasonable measures” to preserve secrecy?

The third element of the trade secret test — reasonable measures to preserve secrecy — requires trade secret owners to implement policies and procedures designed to safeguard the information that they want to protect. But because courts have not established a bright line rule for determining whether measures are “reasonable,” the reasonableness of a particular set of measures is highly fact-dependent. At a high level, reasonable measures should (at the very least) limit access to those people who (1) need access to the trade secrets and (2) are subject to a confidentiality agreement.

Contractual protections

Contracts are popular and effective tool to protect trade secrets. Contracts that are frequently used for trade secret protection include:

• Confidentiality and non-disclosure agreements (NDAs)
• Non-compete and non-solicitation agreements
• Invention assignment agreements

When executing these contracts in a global business environment, it is important to keep in mind the local law where the counterparties are located. For example, consider a situation in which a company hires an employee in the U.S. and executes a standard American employee invention assignment. The employee then transfers to South Korea, but the company does not execute a new invention assignment. In the absence of an updated contract, South Korea’s default assignment statutes arguably apply, which are considerably different from the U.S.’s.

Physical security

Trade secret owners should know where their sensitive information is stored and used and then evaluate the physical security of those spaces. For example, it may be appropriate to physically limit access to those individuals who need to access the information or to require NDAs as a condition of entry into those areas.

Information security

Information security can complement physical security and contractual protections by making it technically challenging or impossible to breach trade secret protection measures. As with physical security, limit digital access to those who need it, restrict information-sharing, and control remote access to company servers. Trade secret owners should take extra precautions when maintaining or transporting trade secret information in higher risk areas.

Company culture

Even the best trade secret protection policies are meaningless if employees do not abide by them. When onboarding new employees, use NDAs and invention assignment agreements as a starting point for education about confidentiality and trade secrets. Once employees are onboarded, provide ongoing formal and informal education that is tailored to each employee’s specific job functions and the local culture in which they are working. For example, trade secret education would look different for an employee developing code from home in Kosovo than it would for an employee working on-site in a lab in Boston. Ensure that employees know what the expectations are for how they should be handling and protecting the trade secrets with which they are entrusted. Employee offboarding is a particularly risky time for trade secret leakage. To help guard against trade secrets departing with employees, use exit interviews to remind employees about the trade secrets they had access to and what their obligations are with respect to those trade secrets going forward.

Extraterritorial application of U.S. trade secret law

There is a presumption in the American legal system that U.S. law applies only within the U.S., but federal trade secret law is an exception. The Defend Trade Secrets Act (DTSA) provides a federal cause of action for trade secret claims. It allows trade secret owners to sue in federal court for trade secret misappropriation as long as the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. The DTSA also applies to conduct occurring outside the U.S. 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.

18 U.S.C. § 1837.

What is an “act in furtherance of the offense”?

The DTSA does not explain what constitutes an “act in furtherance of the offense,” thus leaving that provision open to interpretation by the courts, and courts have construed the concept broadly. For example, in Motorola Sols., Inc. v. Hytera Commc’ns Corp., 436 F. Supp. 3d 1150 (N.D. Ill. 2020), the court found that merely attending a trade show to promote a product that embodies a misappropriated trade secret – even where all allegedly misappropriating acts occurred overseas – is enough to warrant extraterritorial application of the DTSA. In that case, Motorola alleged that Hytera hired engineers from its Malaysian office who had taken thousands of Motorola’s confidential technical documents. It alleged that Hytera then used that information to create a radio that was functionally indistinguishable from Motorola’s competing radio products. While the acquisition of the trade secrets and product development occurred outside the U.S., the defendant advertised, promoted, and marketed products embodying the allegedly stolen trade secrets at several trade shows in the U.S. The court found that these activities were unauthorized “uses” sufficient to warrant extraterritorial application of the DTSA.

Other examples of activities that, if tied to the trade secret misappropriation, are likely enough to subject a foreign defendant to a lawsuit in the U.S. under the DTSA include:

• Communicating with individuals in the U.S. through email, phone calls, or virtual meetings
• Accessing computer servers located in the U.S.
• Recruiting U.S. employees
• In-person meetings in the U.S.
• Disclosing trade secrets to third parties in the U.S.

In contrast, merely alleging damages in the U.S. that resulted from foreign trade secret misappropriation is not enough to warrant extraterritorial application of the DTSA. In ProV Int'l Inc. v. Lucca, 2019 WL 5578880 (M.D. Fla. Oct. 29, 2019), Florida-based ProV International alleged that Lucca, a former employee of its Brazilian subsidiary ProV Brazil, had misappropriated proprietary practices, operating procedures, customer lists, and the identity of its employees, causing it to suffer monetary losses. The court found that the damages resulting from the misappropriation did not constitute part of the offense itself, but instead constituted the effects of a fully completed operation, and thus that no “act in furtherance” of the offense was committed in the U.S.

Trade secret enforcement at the International Trade Commission

The International Trade Commission (ITC) is an administrative agency with the power to hear cases involving unfair practices in import trade under Section 337 of the Tariff Act of 1930, including certain trade secret matters. Its purpose is to stop (1) the importation into the U.S., (2) the sale for importation, or (3) the sale within the U.S. after importation of articles that infringe a valid and enforceable U.S. IP right or are unfair to competition. Remedies at the ITC consist of exclusion orders (enforced at the borders by U.S. Customs and Border Protection) and cease and desist orders (enforced by the ITC for illegal sales activity within the U.S.). Monetary damages are not available as a remedy at the ITC.

ITC investigations are conducted on an 18-month schedule, which is significantly shorter than proceedings in U.S. District Courts. While most ITC trials (hearings) begin around month 10, the close of fact discovery typically occurs about four to five months after the institution of proceedings. Complainants must thus identify their trade secrets and find evidence of misappropriation in a comparatively short timeframe. Many administrative law judges (ALJs) at the ITC require complainants to provide a final identification of their trade secrets six weeks before the close of fact discovery, further shrinking the timeline down to about three months.

Causes of action for trade secret misappropriation at the ITC arise under 19 U.S.C. § 1337(a)(1)(A)(i), which prohibits “[u]nfair methods of competition and unfair acts in the importation of articles… the threat or effect of which is—(i) to destroy or substantially injure an industry in the United States...” While the statute does not explicitly refer to a “domestic industry,” the Commission has held that the complainant in an ITC action must establish the existence of a domestic industry and that that industry must be both qualitatively and quantitatively significant. Complainants can demonstrate that they have a domestic industry by showing:

• Investment in plants and equipment
• Investment in labor and capital
• Investment in engineering research, development, and licensing

The Commission does not require complainants to show that their domestic investments relate to the same trade secret they allege has been misappropriated.

Showing an injury to a domestic industry

To allege an injury to a domestic industry, the complainant must “state a specific theory and provide corroborating data to support the allegation(s) in the complaint concerning the existence of a threat or effect to destroy or substantially injure a domestic industry.” 19 C.F.R. 210.12(a)(8). To satisfy these requirements, complainants should include the following in their ITC complaints:

• Volume and trend of production, sales, and inventory of the involved domestic article
• Description of the facilities and number and type of workers employed in the production of the involved domestic article
• Profit-and-loss information covering overall operations and operations concerning the involved domestic article
• Pricing information with respect to the involved domestic article
• When available, volume and sales of imports
• Any other pertinent data

The plaintiff must also establish a “causal nexus” — a relationship between the unfair acts (i.e., misappropriation) of the respondent and the injury.

The ITC’s reach

The ITC has the authority to stop the importation of goods if it finds unfair methods of competition or unfair acts in the importation of those goods. But does that authority extend to conduct — including trade secret misappropriation — that occurs entirely outside the U.S.? The U.S. Court of Appeals for the Federal Circuit answered that question in TianRui Grp. Co. v. Int’l Trade Comm’n, 661 F.3d 1322 (Fed. Cir. 2011).

There, complainant Amsted owned two secret processes for making cast railway wheels known as the “ABC process” and the “Griffin process.” The ABC process had previously been used in the U.S. but was only used abroad at the time Amsted filed its ITC complaint. TianRui, a foreign company, sought to license Amsted’s technology but the parties could not agree to terms. Instead, Amsted alleged that TianRui hired nine employees away from one its Chinese licensees to obtain its trade secrets. TianRui then marketed and imported its wheels into the U.S. All acts — including the hiring, alleged misappropriation, and manufacturing — occurred outside the U.S. Amsted filed a Section 337 complaint and the ALJ issued a limited exclusion order, finding that there was overwhelming evidence that TianRui obtained its manufacturing process through the misappropriation of Amsted’s trade secrets.

On appeal to the Federal Circuit, TianRui argued that Section 337 does not apply to extraterritorial conduct and thus does not reach trade secret misappropriation that occurred outside the U.S. Amsted countered that the Commission did not apply Section 337 extraterritorially because the trade secrets were misappropriated as a matter of law when the wheels were imported into the U.S. The Federal Circuit agreed with Amsted, finding that the importation of the offending goods gave the ITC jurisdiction to enforce Section 337 even though the acts of misappropriation occurred outside the U.S. The court noted that the statute “naturally contemplates that the unfair methods of competition and unfair acts leading to the prohibited importation will include conduct that takes place abroad.” Id. at 1335.

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Protecting and enforcing trade secrets in a global economy requires a multifaceted approach that encompasses contractual protections, physical and information security measures, and a company culture that prioritizes confidentiality. By taking advantage of the legal tools and forums available to them, particularly the DTSA and the ITC, businesses can better safeguard their valuable trade secrets across international boundaries. Since trade secret misappropriation can occur all over the world, trade secret owners must be proactive in their efforts to protect their IP.

For even more insights on trade secret protection and enforcement strategies, please see our webinar “Protecting and Enforcing Your Trade Secrets in a Global Economy.”