Since its passage in 2016, the Defend Trade Secrets Act (“DTSA”) has become a powerful tool for litigants seeking civil redress for the misappropriation of trade secrets to get into federal court. The DTSA is particularly important because it allows litigants to seek redress for misappropriation that happens outside of the United States – overcoming the general presumption that federal law does not have an extraterritorial reach. We recently discussed the significance of the DTSA’s application across the globe and how to effectively achieve quick recourse.
Earlier this month, the Sedona Conference Working Group on Trade Secrets published the March 2021 Public Comment Version of the Framework for Analysis on Trade Secret Issues Across International Borders: Extraterritorial Reach (the “Framework”). As a valuable resource for both plaintiffs and defendants, “[t]he Framework is designed to help practitioners and the judiciary identify the key means by which conduct [relating to trade secret misappropriation] abroad is reached by U.S. law. With respect to each of these means, the Framework identifies areas of agreement and disagreement or ambiguity and puts into the appropriate context the types of issues that frequently arise with respect to extraterritorial reach.”
Notably, the Framework analyzes how litigants can redress extraterritorial misappropriation across all of U.S. law, not just the DTSA. The Framework thus offers businesses and practitioners valuable insights when considering how to effectively bring an action. Here are a few examples:
- The DTSA: The Framework concludes that under the prevailing view in Federal Courts “the DTSA will likely be interpreted to apply outside the borders of the United States.” It also identifies the two leading tests for determining when the DTSA reaches extraterritorial conduct – the “but for” test and the “in furtherance of” test – and when the tests are met.
- State Trade Secret Laws: The Framework suggests how to determine whether a state trade secret law reaches outside the U.S. despite “limited guidance” from state courts. First, the U.S. Constitution likely requires minimum contacts with the forum. Then, the practitioner should determine whether there is a clear statutory intent for the trade secret law to apply extraterritorially, or whether it can be reasonably inferred from the law’s language, purpose, subject matter, or history to apply extraterritorially.
- The International Trade Commission: The Framework identifies several advantages to bringing a trade secret action in the ITC. Most notably, the ITC offers a remedy “even if the acts of misappropriation occurred entirely outside the United States,” and it is often easier to obtain foreign discovery through ITC proceedings than in Federal Court.
- Criminal Prosecution: The Framework remarks that “in many instances, acts that constitute civil trade secret misappropriation . . . also constitute criminal economic espionage or criminal theft of trade secrets.” Moreover, though there is some uncertainty regarding the DTSA’s extraterritorial application, there is no dispute that the criminal trade secret law extends beyond the U.S. borders, and that relatively little is required to establish a domestic nexus.
- Extrajudicial Regulatory Remedies: The Framework describes two ways that the government can halt or forestall misappropriation. First, the Department of Commerce, as part of the Export Administration Regulations, can place a misappropriator on the “Entity List,” which bans the wrongdoer from acquiring exports of U.S.-origin items. Second, the Department of Treasury’s Office of Foreign Assets Control can place a foreign wrongdoer on the Specially Designated Nationals and Blocked Persons (SDN) List under Executive Order 13757 for engaging in significant malicious cyber-enabled activities.
- International Trade Secret Laws: The Framework also “provides an overview of the international litigation framework, considers some significant ways in which laws vary among countries, and considers certain major issues that litigants may face when pursuing remedies in other countries.” The overview includes a brief discussion of Article 39 of the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property, and a brief discussion on variations in how national laws protect trade secrets.
In addition, the Framework identifies the major legal issues that generally make-or-break the viability and success of an extraterritorial trade secret actions. In this way, the Framework can also help practitioners anticipate likely issues to arise through litigation:
- Sovereign Immunity: When the suspected misappropriator is a foreign state or its political subdivision, agency, or instrumentality, the defendant is likely to raise a sovereign immunity defense. This requires meeting one of the statutory exceptions to the Foreign Sovereign Immunities Act, most likely the commercial activity exception. This exception is likely meet if the foreign government engages in activities as if it is a private player within a market with “substantial contact” to the United States.
- Choice-of-Law: The choice-of-law concern only arises where there is a substantive conflict between the forum state law and the law of another jurisdiction where the action could be brought. But given the multi-jurisdictional nature of extraterritorial trade secret claims, parties need to understand both the effects of all the possible laws that a claim may be reviewed under, and the jurisdiction’s test for determining which law to apply.
- Personal Jurisdiction: The Framework notes that because the DTSA does not contain a “special jurisdictional hook” like the Securities Acts, Federal Courts have used a variety of tests and tools to determine whether they have personal jurisdiction over foreigners who commit an act within the United States and whether any resulting judgment can be enforced. The Framework calls Federal Court activity in this domain “inconsistent” and counsels that this inconsistency “must be considered in the litigation calculus,” particularly if subject-matter jurisdiction is rooted in the DTSA.
- Venue: The Framework emphasizes that extraterritorial trade secret claims are strong candidates for courts to apply the forum non conveniens doctrine and direct the action to a court in the country where the defendant is located. For these reasons, the Framework offers a number of helpful considerations to invoke when arguing for or against a motion brought on forum non conveniens
- How to Enforce Judgments: The Framework notes that there may be complexities in enforcing judgments against foreign entities and that parties should understand how to enforce judgments early on in a matter, especially if the matter is being adjudicated in a foreign country.
The Sedona Conference is widely respected as a valuable and reliable source for the interpretation of U.S. law. Its Working Groups include successful plaintiffs-side and defendants-side practitioners from around the country, as well as a Judicial Advisor from the Federal Judiciary. Moving forward, the Sedona Conference’s commentary is likely to be relied on by all stakeholders in trade secret law and litigation – not just practitioners, but judicial and legislative officials as well. Companies planning to defend against the misappropriation of trade secrets outside of the United States must make sure that any strategy is at least consistent with the principles of law articulated in the Framework.