Motorola’s $407 Million Win Proves Long Arm of Trade Secrets Law

The Seventh Circuit’s affirmance of Motorola’s $407 million trade secrets award from Chinese competitor Hytera Communications Corp. set new precedent confirming the extraterritorial reach of civil trade secrets law.

Motorola Solutions Inc. convinced the US Court of Appeals for the Seventh Circuit that Congress intended the Defend Trade Secrets Act to cover offenses with even limited US ties. The court found language explicitly allowing extraterritorial application in the Economic Espionage Act, a 1996 criminal trade secrets statute, also applies to the 2016 civil statute in the same chapter of US law.

Although district courts have previously reached that conclusion, the July 2 opinion was the first appellate ruling that the DTSA reaches across borders. It clarifies for future litigants that profits earned abroad could be at stake in domestic lawsuits if they stem from trade secrets theft by a US company or citizen or if, as the criminal trade secrets law originally put it, “an act in furtherance of the offense was committed” within the US.

Federal trade secrets law offers more clarity and a longer reach than the Lanham Act, which led to a 5-4 Supreme Court ruling limiting the extraterritorial reach of trademark law earlier this year, legal professionals said.

“The DTSA is one of the very few statutes—total, not just IP statutes—where Congress was as explicit about their intention to rebut a presumption against extraterritoriality,” intellectual property professor Elizabeth Rowe of the University of Virginia said.

What was surprising about the Seventh Circuit result wasn’t that it allowed extraterritoriality, but the broad scope it adopted for when to apply US trade secrets law to conduct abroad, intellectual property attorney Joshua Hartman of Merchant & Gould LLP said. It held that the provision “does not require a completed act” in the US, nor a domestic act to cause sales to put them in a plaintiff’s reach.

“‘In furtherance of’ is pretty open-ended language,” Hartman said. “It’s hard to imagine the bar going lower than this. In practice it’s going to sweep in an awful lot.”

But any extraterritorial reach can carry consequences as other countries may enforce their laws against behavior in the US, said trade secrets attorney James Pooley.

“Our exercising jurisdiction over acts we believe to be improper behavior outside our jurisdiction—that can be done both ways,” said Pooley, who nevertheless endorsed the DTSA’s extraterritoriality. “We can end up with a collision of authority.”

‘Heinous Conduct’

Hytera poached three Motorola employees located in Malaysia, offering them high-paying jobs in exchange for Motorola’s proprietary information, according to court records. Before leaving Motorola, and at Hytera’s direction, the employees downloaded thousands of documents and files containing trade secrets and copyrighted source code related to high-end digital mobile radio products.

The company then launched a line of DMR radios between 2010 and 2014. Motorola sued for trade secret theft and copyright infringement in 2017, and a jury awarded $765 million, which the court reduced to $544 million. Hytera appealed, challenging damages and not the theft.

The Seventh Circuit upheld the $407 million trade secrets award—two-thirds of which was punitive damages—while telling the district court to rethink the $137 million copyright award. The panel noted the “blatant” theft followed during litigation by “gamesmanship and deception” as Hytera deleted stolen documents, fabricated research and development efforts, and continued to sell its radios.

“Hytera was accused of some really horrible, heinous conduct,” IP attorney Armin Ghiam of Hunton Andrews Kurth LLP said.

The opinion turned on the extraterritoriality test in RJR Nabisco v. European Community, a 2016 US Supreme Court racketeering ruling. The high court said there’s a presumption against extraterritorial reach that Congress can rebut by indicating so in the statute.

The Economic Espionage Act created Chapter 90 on trade secrets. Section 1837 of it said “this chapter also applies to conduct occurring” abroad if the “offender” is a US citizen, or if “an act in furtherance of the offense” was committed in the US.

Hytera argued that language applies only to the original criminal provisions, not the civil right of action added by the Defend Trade Secrets Act decades later. It argued “offender” indicates criminal rather than civil liability, and called it anomalous that trade secrets—but not other IP statutes—could reach overseas.

But the circuit court decided “this chapter also applies” is most sensibly read to mean the the extraterritorial reach covers all of Chapter 90. “We see nothing necessarily anomalous” about Congress “making different policy choices for different statutes,” the opinion added.

The US District Court for the Northern District of Illinois’ “opinion was the first and so far only court that has gone deeply into the details on all of these arguments,” Pooley said. The Seventh Circuit’s affirmance “will be seen as pretty much the end of the analysis,” and other courts will likely follow suit, he said.

A ‘Gamble’

International enforcement of trade secrets rights needs to be powerful given their importance in international business, Pooley said. But he cautioned that such enforcement could further erode the already-deteriorating principle of “comity"—courts’ respect for laws and decisions in other jurisdictions.

He noted the Sino Legend Chemical Co. v. International Trade Commission case in which the Federal Circuit affirmed a Chinese company stole what a Chinese court had already ruled weren’t trade secrets. Comity is held together by a kind of “mutually assured destruction” where chaos results from complete disregard from other jurisdictions’ authority on their own turf, Pooley said.

If applying the DTSA’s extraterritorial reach is “thoughtful,” “doesn’t happen all the time,” and focuses where effects on US and its legitimate interests are clear, “people are not going to be upset about it,” Pooley said. If it appears in more tenuous cases or as a form of forum shopping, though, “other things might happen, causing us to wonder whether it was worth the gamble,” he said.

Another possible shortcoming of extraterritorial application is enforceablity, particularly if a defendant doesn’t have US assets to pursue. Collecting damages from a foreign entity can be challenging, Hartman said, especially those based in China. An ITC complaint can keep products out of the US, but that doesn’t come with damages, he said.

IP attorney Leiza Dolghih of Dolghih Law Group added that extraterritoriality law applies to “a small pool of cases” because “it’s expensive and complicated” to go after someone in a foreign jurisdiction. She and others noted that accessing information located outside the US is a challenge because few countries offer anything close to the US’s robust discovery rules.

In the end, the practical realities of trade secret theft—including by entities owned or supported by China and other states—calls for solutions that cross borders, legal professionals say. Ghiam said there’s a distinction between traditional IP enforcement and trade secrets enforcement under the DTSA.

“There was no national security concern” in trademark and other IP contexts, Ghiam said. “When going after foreign actors who may be going after trade secrets, it has to be extraterritorial for it to be very effective.”

The case is Motorola Solutions Inc. v. Hytera Communications Corp. Ltd., 7th Cir., No. 22-2370.