International trade secret litigation in the federal courts: extraterritoriality

Passage of the Defend Trade Secrets Act (“DTSA”) did more than just provide a federal civil cause of action for misappropriation. The DTSA allows civil lawsuits against foreign actors who committed their theft of trade secrets entirely abroad. Federal courts can preside over cases of foreign misappropriation so long as an “act in furtherance” of the misappropriation occurred in the United States. Thus, wrongdoers stealing trade secrets in China and the United Arab Emirates – without ever entering California – now find themselves facing California judges and juries. This article addresses the circumstances when federal courts will hear DTSA claims over misappropriation occurring entirely outside the United States.

The Statute – 18 U.S.C. § 1837

Since 1996, the Economic Espionage Act has included Section 1837 titled “Applicability to conduct outside the United States.” This statute provides for extraterritorial jurisdiction. This statute governs misappropriation occurring outside the United States in two instances:

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.

18 U.S.C. § 1837 (1996).

Little controversy has arisen over extraterritoriality arising from United States citizenship, resident alien status or corporate status under 18 U.S.C. § 1837(1). In contrast, parties have had great debate whether an “act in furtherance” committed in the United States occurred to allow for extraterritorial jurisdiction.

Applicability of Section 1837 to Civil Lawsuits

Questions arose upon passage of the DTSA in 2016 whether Section 1837 applied to civil DTSA claims. Opponents pointed to the terms “offender” and “offense” in the statute to argue that Section 1837 only applied to criminal lawsuits under the Economic Espionage Act. The courts, however, have ruled uniformly that civil DTSA claims may apply extraterritorially in cases satisfying Section 1837. In Motorola Sols., Inc. v. Hytera Commc’ns Corp., 436 F. Supp. 3d 1150, 1157–63 (N.D. Ill. 2020), the court reasoned that Congress clearly indicated its intention to extend the extraterritorial provisions of Section 1837 to DTSA claims. The Motorola court referenced the “sense of Congress” statements that “trade secret theft occurs in the United States and around the world” as well as “trade secret theft, wherever it occurs, harms the companies that own the trade secrets and the employees of the companies”. Id. at 1160.

What is an “Act in Furtherance”?

While Congress did not define “act in furtherance,” the courts have provided constructive guidance on the meaning of this phrase. More than a dozen court decisions have evaluated whether a requisite “act in furtherance” was committed in the United States. Courts interpreting “in furtherance of the offense” under Section 1837(2) have looked to the common law meaning as it is regularly used in federal conspiracy law.

Case law provides the following insights into the meaning of an “act in furtherance of the offense” occurring in the United States:

A single act can suffice (“an act in furtherance”).

The act simply must manifest that the offense is “at work”.

The act need not be the offense itself or any element of the offense.

The act itself need not be committed by the defendant – it can be performed by a vendor, a supplier, a partner, a co-defendant or another player in the stream of commerce.

Foreign defendants’ virtual contacts with the United States, such as virtual meetings, phone calls and emails, may meet the requirement.

Cases establishing an “act in furtherance” often involve four types of factual allegations:

i. Accessing U.S. servers. Downloading trade secrets from the owner’s U.S. servers or storing the stolen trade secrets on U.S. servers can meet the test.

ii. In person contacts. Visits by the wrongdoer to the United States in connection with the overall theft – such as meeting with recruits, vendors, suppliers or partners in the United States – can constitute an act in furtherance.

iii. U.S. commerce. Selling or marketing products or services derived from or embodying the trade secrets in the United States can serve as an act in furtherance. In one case, the court found the plaintiff stated a claim under the DTSA based on a “reasonable inference” that the defendant used the plaintiff’s trade secrets in the United States when selling a service using the plaintiff’s trade secrets. In another case, the court refused to dismiss the plaintiff’s DTSA claim because the plaintiff alleged the defendant used that trade secret by offering its products and services throughout the United States. In a third case, the court found an act in furtherance of trade secret misappropriation where the defendant advertised, promoted, and marketed products embodying the allegedly stolen trade secrets domestically at numerous trade shows.

iv. Patent filings. Filing for U.S. patent protection on the stolen trade secrets using patent agents in the United States can qualify as an act in furtherance.

Courts finding an inadequate showing of an “act in furtherance” do so for numerous reasons:

No act in the United States. In many cases, plaintiffs fail to allege any act in furtherance occurring in the United States or plaintiffs fail to show that a given activity, such as accessing servers, actually occurred in the United States.

Timing matters. Courts will reject acts taking place before the operation is underway or after the operation is fully completed.

Insufficiently related acts. Some plaintiffs fail to plead sufficient connection between the alleged U.S. act and the foreign misappropriation.

Damages. Courts have rejected arguments that damages in the United States constitute part of the offense; rather, damages result from a fully completed operation.

Pleading Extraterritoriality

Plaintiffs seeking to establish extraterritorial jurisdiction ought to demonstrate grounds for satisfying Section 1837 in the complaint. While one court recently referred to a “relatively low bar for acts that are considered ‘in furtherance of the offense,’” other courts continue to dismiss complaints for the plaintiff’s failure to detail an act occurring in the United States in furtherance of the misappropriation claim. In view of the importance of the pleading requirement, some courts allow jurisdictional discovery on the issue before ruling on the matter – while other courts do not.

Summary

The DTSA has proven a game changer in international trade secret litigation. Plaintiffs can bring claims of foreign trade secret misappropriation in federal district court so long as they can show an act in furtherance of the misappropriation occurred in the United States. In many instances of foreign misappropriation, having a case heard in the United States is the first step on the road toward bringing wrongdoers to justice.