United States: The Extraterritorial Reach Of U.S. Trade Secret Law

The current extraterritorial reach of U.S. trade secret law may seem ironic given trade secret law's "local" roots. In the United States, common law trade secret principles emerged through a diverse patchwork of state court decisions addressing local commercial disputes. These local common law principles were first distilled in the Restatement of Torts and the Restatement of Unfair Competition and then codified in the  Uniform Trade Secrets Act in 1979. Underscoring the local prerogative of trade secret law, state legislatures modified and tailored the Uniform Trade Secrets Act to reflect their state-specific concerns and needs. For many years, despite a push for national uniformity, a number of states chose not to adopt a statutory scheme at all (some still haven't).

In parallel with these state-specific developments, the "local" nature of business gave way to a national business environment. Because trade secret disputes often involved companies from different states or products distributed in interstate commerce, state courts increasingly applied their state laws to citizens and companies of other states. Likewise, trade secret owners often brought their state law trade secret claims in federal court, rather than state court, under diversity or supplemental jurisdiction theories. Ultimately, a federal statute was passed—the Economic Espionage Act—governing federal criminal actions for trade secret misappropriations. And most recently, this act was amended by the  Defend Trade Secrets Act to give federal courts original jurisdiction over civil causes of action for trade secret misappropriation. While this new federal statutory scheme does not preempt existing state law, it does exemplify that trade secret law has fully evolved from its local origins into a commercial concern of national scope.

A similar pattern now seems to be unfolding on the global stage. Namely, the factual predicates involved in many trade secret disputes—employee mobility, information sharing, business collaborations—often include an international component. Where the facts surrounding a trade secret misappropriation claim transcend international borders, courts struggle with complex jurisdictional and choice of law issues. For instance, where misappropriation occurs outside of the United States, complex questions of personal jurisdiction, extraterritorial reach, and enforceability of the ultimate judgment arise. This article outlines the nature and extent to which United States trade secret law—both before and after the Defend Trade Secrets Act—might apply to trade secret misappropriation that occurs outside of the United States. The complex questions of personal jurisdiction and enforceability of judgments are not addressed here. Rather, the focus centers on the more fundamental question of whether and under what circumstances U.S. law might apply to conduct abroad.

Extraterritorial Application of State Trade Secret Law

U.S. courts in certain jurisdictions have held that state trade secret statutes can have extraterritorial reach. The reasoning is largely grounded in the "tort out / harm in" theory developed through jurisdictional jurisprudence. For instance, the U.S. Court of Appeals for the Third Circuit recognized that the "fictional situs" of the harm caused by trade secret misappropriation—irrespective of where that misappropriation occurs—is the residence of the trade secret owner. See, e.g., Horne v. Adolph Coors Co., 684 F.2d 255, 259 (3d Cir. 1982). This recognition of "in state" harm and a policy to protect a state's companies from misappropriation can serve as the rationale for extraterritorial application of a state's trade secret law. A district court in California applied the California Uniform Trade Secrets Act against a Chinese entity under this theory, holding that "California law applies where an out-of-state defendant's conduct causes injury in California. . . . This principle is especially true when the injury involves misappropriation of a trade secret because California has a significant interest in protecting the intellectual property of its citizens and businesses from infringement by foreign defendants." Applied Materials, Inc. v. Advanced Micro-Fabrication Equipment, Inc., No. 5:07-cv-05248-JW (N.D.Cal. February 29, 2008) (citations omitted). On these grounds, the court held that "Plaintiff's allegations state a claim in which California law may be applied extraterritorially." Id.

Importantly, the  Applied Materials case did involve key conduct in the United States. The accused misappropriators were former employees of the plaintiff, a Delaware corporation with a principal place of business in California. And while the accused misappropriators relocated to China to develop a competing company using allegedly misappropriated technology, they learned of the technology in the first instance while working for the plaintiff in the United States. A U.S. court might not be as willing to entertain the extraterritorial application of a state statute in circumstances where all of the conduct at issue occurs abroad (e.g., misappropriation abroad, manufacturing abroad, sales exclusively abroad, etc.). Indeed, where the factual connection to the United States is more tenuous, U.S. courts may choose to apply the law of a foreign jurisdiction instead of U.S. federal or state law. See, e.g., BP Chemicals, Ltd. v. Formosa Chemical & Fibre Corp., 229 F.3d 254, 266-68 (3d Cir. 2000) (applying Taiwanese trade secret law to a dispute between a United Kingdom trade secret owner and a U.S. corporation where the misappropriation occurred in Taiwan).

Extraterritorial Application of U.S. Federal Trade Secret Law in ITC Actions

The U.S. International Trade Commission ("ITC") will broadly apply U.S. federal trade secret law extraterritorially to address misappropriation occurring abroad. Under  19 U.S.C. § 1337 ("Section 337"), the ITC exercises in rem jurisdiction over products that are imported into the United States where there has been an act of unfair competition. Section 337 actions are brought to obtain an exclusion order, blocking further importation of offending products into the United States. The ITC has long held that "[t]here is no question that misappropriation of trade secrets, if established, is an unfair competition or unfair act which falls within the purview of Section 337." Certain Processes for the Manufacture of Skinless Sausage Casings and Resulting Product, Inv. No. 337-TA-148/169, 1984 ITC LEXIS 137, *165-66 (July 31, 1984). And in 2011, the Federal Circuit affirmed the ITC's application of U.S. trade secret law—what the court called "federal common law" and "a single federal standard"—to a dispute in which all of the acts of misappropriation occurred in China. TianRui Grp. Co. v. Int'l Trade Comm'n, 661 F.3d 1332 (Fed. Cir. 2011).

In TianRui, the Federal Circuit acknowledged the longstanding presumption that federal statutes apply only within the territorial jurisdiction of the United States. Id. at 1328-29. Under the Supreme Court's Morrison decision, this "presumption against extraterritoriality" can be rebutted where a statute gives a clear indication of an extraterritorial application. Morrison v. National Australia Bank Ltd., 130 S.Ct. 2869 (2010). In TianRui, the Federal Circuit found that Section 337 applied extraterritorially because (1) the statute's focus on unfair competition and unfair acts "in the importation of articles" demonstrates that Congress was not focused solely on domestic concerns, (2) the application of the statute is not "purely extraterritorial," but rather is properly grounded in domestic activity in that the statute's focus is "on the act of importation and the resulting domestic injury," and (3) the legislative history of Section 337 supports extraterritorial application. TianRui, 661 F.3d at 1328-33.

Accordingly, in situations where the facts support a Section 337 action—including the importation of products and attendant domestic injury— the ITC stands as a powerful option for trade secret owners seeking to apply U.S. trade secret law where the misappropriation occurs abroad.

Extraterritorial Application of the Economic Espionage Act as Amended by the Defend Trade Secrets Act

Congress passed the Economic Espionage Act ("EEA") in 1996, creating a federal criminal cause of action for trade secret misappropriation. In 2016, the EEA was amended by the Defend Trade Secrets Act ("DTSA") to create a federal civil cause of action for trade secret misappropriation.  Section 1837 of the EEA is entitled "[a]pplicability to conduct outside the United States." 18 U.S.C. § 1837. Under this section, both criminal and civil actions are available irrespective of where the trade secret misappropriation occurs as long as either (1) the
offender is a U.S. citizen or corporation or (2) "an act in furtherance of the offense was committed in the United States." Id. Despite the presumption against extraterritorial application of U.S. law, just as with trade secret actions before the ITC under Section 337, courts recognize that the EEA applies extraterritorially. "In enacting the trade secret statutes. . . Congress plainly provided that their terms are applicable to foreign defendants where 'an act in furtherance of the offense was committed in the United States.'" United States v. Kolon Indus., Inc., 926 F.Supp.2d 794, 802 (E.D. Va. 2013).

Although the EEA's extraterritoriality provision has been on the books for over 20 years, there is little case law interpreting the provision or identifying the type of conduct that qualifies as "an act in furtherance of the offense." For instance, it is unclear whether mere economic harm felt in the United States—with all of the activity regarding misappropriation otherwise occurring abroad—would satisfy the "act in furtherance" prong (analogous to certain "tort out / harm in" theories under state law). Likewise, it is unclear whether mere importation of a product made using a trade secret abroad would satisfy the "act in furtherance" prong (analogous to ITC misappropriation actions).

If the legislative history of the DTSA serves as a guide, practitioners might expect to see a broad and liberal interpretation of an "act in furtherance of the offense." Before passing the DTSA, much of the discussion in Congress centered on protecting U.S. businesses from trade secret misappropriation abroad. Indeed,  the Senate Judiciary Committee's Report begins with the recognition that American losses due to trade secret theft exceed $300 billion and 2.1 million jobs annually. S. Rep. 114-220 (2016). The report  concludes with the observation that "[a]s trade secret owners increasingly face threats from both at home and abroad, the bill equips them with the tools they need to effectively protect their intellectual property and ensures continued growth and innovation in the American economy." Id. Congress's desire to protect U.S. business from trade secret theft abroad is also apparent from certain noncodified sections of the DTSA requiring a detailed study and report on "[t]he scope and breadth of the of trade secrets of United States companies occurring outside the United States" and reflecting the "Sense of Congress" that "trade secret the , wherever it occurs, harms the companies that own the trade secrets and the employees of the companies." In light of such provisions, an argument can be made that Congress intended the extraterritorial reach of the EEA to apply broadly.

Conclusion

With increasing globalization—including global distribution and supply chains, offshore manufacturing, international collaborations, technology transfers, and cross-border employee mobility—efforts to apply United States trade secret law to disputes of an international character may be on the rise in the near future. Accordingly, the developing case law addressing extraterritorial application of U.S. trade secret law—whether through state statutes, ITC proceedings, or the newly-enacted civil EEA provisions—promises to raise significant opportunities and considerations for companies wrestling with misappropriation of trade secrets outside of the United States.

Originally printed in IP Watchdog on May 30, 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
2 Nov 2017, Webinar, Washington, DC, United States

Join us for a two-part webinar series exploring recent developments in machine learning and other technologies that have greatly advanced artificial intelligence (AI) since its origins more than 50 years ago.

9 Nov 2017, Webinar, Washington, DC, United States

As part of Strafford Publications’ webinar series, Finnegan attorneys Adriana Burgy, Chris Johns, and Kai Rajan will discuss the Examiner Count System and provide strategies for interacting with examiners.

15 Nov 2017, Conference, California, United States

Finnegan is a Gold sponsor of the second annual Digital Media & IP Forum, hosted by World Congress.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.