The misappropriation of trade secrets by foreign entities costs the U.S. economy as much as $600 billion per year, according to the findings of a recent Senate commission on the theft of American intellectual property. Most, if not, all U.S. businesses are grappling with this reality and looking for ways to better protect their information.
The Defend Trade Secrets Act (DTSA) created a federal civil right of action for the wrongful acquisition, use, or disclosure of another’s trade secrets. Federal courts are empowered to grant monetary and injunctive relief for misappropriation.
But successfully pursuing a foreign defendant in federal court, however, can be a challenge. This is particularly true where the foreign defendant ostensibly has no permanent domestic presence. To do so, a plaintiff needs to establish the court’s personal jurisdiction over the defendant(s), and that the domestic forum is better-suited for the dispute.
These actions are at risk of either quick dismissal for failure to plead a nexus to the jurisdiction in which the court sits or, perhaps worse still, months and months of delay in resolving that question. Even then, actions against foreign misappropriators can be challenging to prosecute given complexities of corporate form and the reality that much of the evidence, witnesses, and documents will be overseas.
Key Considerations for Quicker Recourse
U.S. businesses facing foreign misappropriators wants quick recourse, not more process and uncertainty. When pursuing foreign misappropriators, therefore, where to sue is often the key strategic decision. Three key considerations should take precedence.
Where Did Misappropriation Occur?
First, the central question in most personal jurisdiction analyses is whether the defendants directed any activities into the district—or “purposefully availed” themselves of the district—not into the U.S. as a whole.
Indeed, at least one court has held that because the DTSA is an intentional tort, any act of misappropriation in the district satisfies the constitutional personal jurisdiction requirement.
But even without saying it outright, other courts have also held that meeting the DTSA’s domestic nexus is enough for personal jurisdiction purposes as well. For example, a California federal court in 2020 held that the same facts which showed that the misappropriation was “at work” established that the defendants had expressly aimed their activities toward the state.
This may be a fact intensive question and there may be more than one judicial district at issue. While many considerations may be relevant, best practices suggest choosing the district with the clearest nexus to the acts of misappropriation to avoid a potentially lengthy side show.
Second, know how to plead a domestic nexus. The DTSA covers extraterritorial misappropriation as long as “an act in furtherance of” the misappropriation “was committed in the United States.” Taken literally, this only requires a single domestic act, and at least one court has suggested that one is enough. That being said, most of the winning cases cited herein involved more than one act in the U.S. and, all else being equal, the more the better.
What Types of Acts Qualify
The more important question is what types of acts qualify. When is an act “in furtherance of” misappropriation? One court has explained that an act is “in furtherance of” misappropriation when it “manifest[s] that the offense is at work.” In that case, the complaint alleged that the defendant was using the trade secret technology in a domestic proxy server. Using the trade secret in the U.S. pretty clearly “manifests” that the misappropriation “is at work.”
But some courts have also required far less. For example, “advertis[ing], promot[ing], and market[ing] products embodying the allegedly stolen trade secrets” in the U.S. is enough. “[O]btaining access” to trade secret software code “through at least one third-party” with a U.S. footprint is enough.
And even just attempting to hire engineers at a domestic job fair who would eventually build the misappropriated technology overseas is enough. The law on how to define an act “in furtherance of” misappropriation is not settled, so it is important to look closely at the case law in the district where you file.
Where to File
Third, consider filing in the International Trade Commission (ITC) either concurrently or before filing in federal court. While the ITC can only enjoin the foreign actor’s misappropriation, the standard for issuing an injunction is lower. Moreover, the agency’s decision has preclusive effect on the federal action.
This all means that success in the ITC can put a company in a strong position in federal court—potentially needing only to prove up damages, and already with significant discovery at its disposal.
Also, every litigant should consider alleging a state trade secret claim in addition to the DTSA. Though not all state trade secret laws have extraterritorial application, many courts do interpret the state law co-extensively with the DTSA.
No one can guarantee success in court against a foreign misappropriator. But an informed approach improves the prospects of success. These three considerations are the first step.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
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Mark Klapow is a partner at Crowell & Moring LLP, where he co-chairs the Litigation Group. He was the chair of the AIPLA trade secret law committee, serves on the Sedona Conference Working Group on Trade Secrets, and speaks and writes on trade secrets.
Jacob Canter is an associate at Crowell & Moring LLP where he focuses on internet and technology law. He recently completed a clerkship in the Southern District of New York in the chambers of the Hon. Lorna G. Schofield.