Non-U.S. companies should not assume they are immune from civil claims under the federal Defend Trade Secrets Act of 2016 (“DTSA”) simply because they are not U.S. companies. Since the enactment of the DTSA four years ago, the statute’s extraterritorial application has not been a heavily-litigated issue; however, a recent series of federal decisions indicate that civil litigants may apply the DTSA to foreign defendants so long as some act in furtherance of the misappropriation occurred in the United States, even if the foreign defendants’ acts took place outside the United States.
The DTSA amended the Economic Espionage Act of 1996, Pub. L. 104-294, which had criminalized the theft of trade secrets in certain contexts. The DTSA created a private right of action and provides that “[a]n owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. § 1836(b)(1). Though the DTSA does not expressly state that a private right of action may be brought against an extraterritorial defendant, it does provide that “this chapter” “also applies to conduct occurring outside the United States if . . . an act in furtherance of the offense was committed in the United States.” 18 U.S.C. § 1837.
Three recent decisions have grappled with this language in the DTSA and ruled that its private right of action applies to extraterritorial defendants under certain circumstances. In the first decision, vPersonalize Inc. v. Magnetize Consultants Ltd., No. 2:18-CV-01836-BJR, 2020 WL 534505 (W.D. Wash. Feb. 3, 2020), plaintiff vPersonalize, an owner of two patents for methods of automating the design and manufacture of custom-printed apparel and accessories, sued competitor Kit Builder, a United Kingdom-based business, asserting, inter alia, patent infringement and violation of the DTSA. Kit Builder sold a custom clothing designer software called “3D Kit Builder,” which allowed a user to design garments with different options for color, logos, text, embellishment, size, etc…, and offered its products and services to customers, business affiliates and partners located in the United States. In moving to dismiss the complaint, Kit Builder argued the DTSA civil enforcement provision did not apply because Kit Builder was a United Kingdom-based entity. Id. at *12.
In analyzing the extraterritorial challenge, the court rejected Kit Builder’s argument that “offense,” as used in 18 U.S.C. § 1837, referred only to the criminal offenses, and that therefore the extraterritorial provision does not apply in a civil context; the court found that under Kit Builder’s narrow interpretation of “offense,” a plaintiff could never bring a civil enforcement action against a foreign entity, even one that had committed an offense in the U.S. Id. Citing to a series of recent district court decisions that assumed (without explicitly deciding) that the DTSA civil enforcement provision may be applied to a foreign entity, the court also found that based on a plain reading of the statute, 18 U.S.C. § 1837 authorized civil enforcement actions against foreign entities to the same extent as criminal actions.
Importantly, the VPersonalize court also found that the extraterritoriality provision of Section 1837(2), which requires that “an act in furtherance of the offense was committed in the United States” does not require the extraterritorial defendant to have committed such act to satisfy the statute. Because vPersonalize alleged that Kit Builder improperly obtained access to vPersonalize’s proprietary product through the actions of at least one third-party in the United States, which Kit Builder acknowledged to be an “act alleged to have been committed in the United States,” the court found that the extraterritoriality provision of Section 1837 was met. Id. at *12. This decision indicates that a foreign entity can still be subject to the DTSA even if it was not the entity that actually committed acts in furtherance of the misappropriation act in the United States.
Another recent decision echoes such findings on the extraterritorial application of the DTSA. In Motorola Sols., Inc. v. Hytera Commc’ns Corp., No. 1:17-CV-1973, 2020 WL 967944 (N.D. Ill. Jan. 31, 2020), a radio manufacturer (Motorola) sued a competitor (Hytera), asserting claims for, inter alia, trade secret misappropriation under the DTSA and the Illinois Trade Secret Act based on allegations that Hytera hired three engineers away from Motorola’s Malaysian office, that those engineers stole and brought with them thousands of Motorola’s technical, confidential documents, that Hytera used those documents, which contained trade secrets and lines of source code, to develop a digital radio indistinguishable from Motorola’s radios, and that Hytera sold those radios all around the world, including in the United States. Hytera filed a motion to preclude Motorola from relying on extraterritorial damages, arguing that the DTSA did not have extraterritorial effect and damages should be limited only to a domestic application of the statute.
In a lengthy analysis, the court reviewed whether Section 1837 of the DTSA created an extraterritorial application of the private right of action codified in Section 1836. The court found that Congress intended for the private right of action of the DTSA to apply extraterritorially because Section 1837 refers broadly to “this chapter,” which includes within it Section 1836, showing that Congress intended Section 1837 to apply to Section 1836, and that the actual law passed by Congress, Pub. L. 114-253, included numerous references to extraterritorial conduct that were absent in the previous versions of the statute, showing that Congress was concerned with actions taking place outside of the United States in relation to the misappropriation of U.S. trade secrets when it passed the DTSA. Id. at *5-6. The court further found no language limiting what damages were available civilly in Section 1836, which broadly creates a private right of action. Id. at *7. The court went on to hold that Section 1837 was satisfied because Motorola presented evidence sufficient to support a finding that an act in furtherance of the offense has been committed in the United States, namely, undisputed evidence that Hytera advertised, promoted, and marketed products embodying the allegedly stolen trade secrets domestically at numerous trade shows in the U.S. Id. at *9-11.
Thus, vPersonalize and Motorola Sols. instruct that an extraterritorial defendant may be liable under the DTSA even if it did not commit any acts in the U.S. However, other federal decisions underscore that some entity must have committed an act in furtherance of the offense in the United States, or else liability will not extend to the extra-territorial defendant. For example, in Luminati Networks Ltd. v. BIScience Inc., No. 2:18-CV-00483-JRG, 2019 WL 2084426 (E.D. Tex. May 13, 2019), the court reasoned it was not enough to merely cause harm to a United States party, in the form of lost customers, where all of the alleged acts took place outside the United States.
Furthermore, the recent decision in ProV Int’l Inc. v. Lucca, No. 8:19-CV-978-T-23AAS, 2019 WL 5578880 (M.D. Fla. Oct. 29, 2019) demonstrates that to satisfy the DTSA, the alleged actions in the United States must actually be connected to the alleged trade secret misappropriation. In that case, the plaintiff ProV sued for violation of the DTSA, alleging that two former employees, one a German resident and the other a Brazilian resident, each resigned from a foreign subsidiary of ProV and joined Nuvolax, a competing IT consulting firm, and began soliciting ProV’s employees to join Nuvolax in Germany and Brazil. ProV claimed that the former employees both misappropriated ProV’s trade secrets by disclosing to Nuvolax the identity of ProV’s employees and clients. The court noted that the complaint contained no allegation suggesting that the former employees attempted to recruit an employee from the United States, that the former employees acquired the alleged trade secrets in the United States, or that the former employees used the trade secrets in the United States. Quoting 18 U.S.C. § 1837(2), the court stated that, under the DTSA, a plaintiff cannot sue for misappropriation occurring outside the United States unless either “(1) the offender is a … citizen … of the United States…; or (2) an act in furtherance of the offense was committed in the United States.” Although the first former employee allegedly travelled to a trade show in Las Vegas, Nevada, to attend an event and to tender his resignation to ProV, the court found that the complaint alleged no facts connecting his attendance at the trade show with the alleged misappropriation of ProV’s trade secrets. And although ProV allegedly lost revenue after employees resigned from ProV Brazil and ProV Germany and joined Nuvolax, the court found that the damages resulting from the misappropriation “[did] not constitute part of the offense itself” but constituted the effects of a “fully completed operation.” Id. at *11. The court therefore found that ProV did not allege facts showing that “an act in furtherance of the offense was committed in the United States.” And because ProV failed to allege facts showing (1) that the defendants misappropriated a trade secret and (2) that the defendants committed in the United States an “act in furtherance of” the misappropriation, the court found ProV failed to state claim under the DTSA. Id. at *3.
In sum, though the federal appellate courts have not yet addressed the issue, a consensus is emerging among several federal district courts that the DTSA applies to extraterritorial defendants so long as an act in furtherance of the violation occurred in the United States, even if the particular foreign defendant did not commit that act. The DTSA thus potentially creates liability exposure to non-U.S. companies depending on the degree to which such companies themselves conducted acts in the U.S., or utilized, employed, or were connected to third parties that conducted acts in the U.S., and the degree to which such actions relate to the alleged misappropriation of trade secrets.
Trade secret misappropriation impacts businesses across a variety of industries, and the consequences can be severe. A potential victim of trade secret theft should swiftly consult experienced litigation counsel.