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International Litigation and the New Federal Trade Secrets Act

by Peter S. Selvin1

The recently passed federal statute, the Defend Trade Secrets Act (“DTSA”),

changes the landscape for the civil enforcement of trade secret protection in the U.S. But

the statute not only provides a uniform federal standard for the determination of disputes

between domestic parties. It also has implications for companies based overseas, even

those without U.S. operations.

Prior to the enactment of DTSA, the civil enforcement of trade secret protection

was governed exclusively by state statutes. Although most states had adopted their own

version of the Uniform Trade Secrets Act, there are substantive differences between and

among the states concerning the applicable law and available remedies in this area.

Although DTSA does not purport to preempt these state statutes, Congress’

intention underlying the enactment of DTSA evidently was to establish a national regime

for the civil enforcement of trade secret protection. In this regard DTSA provides for

original federal court jurisdiction, and hence provides a federal court forum, for the

determination of trade secret claims. As the federal courts are generally considered to be

better suited than state courts for the handling of international litigation, it is expected that

DTSA will be a key tool in trade secrets litigation involving non�U.S. parties.

In this regard, DTSA comes into play if the trade secret is used in, or intended for

use in, "interstate or foreign commerce”2.; emphasis added. Accordingly, the statute on its

1 Peter S. Selvin is a member of Los Angeles�based TroyGould PC.

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face applies to trade theft issues arising out of commerce between U.S.�based companies

and individuals on the one hand and their foreign�based counterparts on the other.

The emphasis on conduct outside the U.S. is reflected throughout the statute. For

example, Section 4 of the statute entitled “Report on Theft of Trade Secrets Occurring

Abroad,” charges the Attorney General with periodic reporting to Congress about “the

scope and breadth of the theft of trade secrets of United States companies occurring

outside of the United States” (emphasis added). Section 5 of the statute recites Congress’

conviction that “trade secret theft occurs in the United States and around the world” and

that “wherever it occurs, [such conduct] harms the companies that own the trade secrets

and the employees of the companies” (emphasis added).

It is expected that the cases interpreting DTSA will determine whether its

provisions will be given extraterritorial effect. This question is especially important in

circumstances where a violation is held to have had a “substantial effect” on U.S.

commerce. Thus, although there is a presumption against the extraterritorial application of

federal law3, cybercriminals and hackers operating outside the U.S. routinely infiltrate

domestically�based computer systems. For this reason, the physical location of an “act” of

trade secret misappropriation is no longer necessarily determinative as to whether U.S.

trade secret law should be given exterritorial effect4. .

There is also an extraterritorial dimension to the enforcement of trade secret rights.

This is because misappropriated trade secrets may reside inside the brains of a U.S.

2 18 U.S.C. § 1836(b)(1)

3 Morrison v. Nat’l Austl. Bank, Ltd., 561 U.S. 247 (2010)

4 See Calvin Klein Industries, Inc. v. BFK Hong Kong Ltd., 714 F. Supp. 78, 80 (S.D.N.Y. 1989); McBee v.

Delica Co., Ltd., 417 F.3d 107, 119 (1st Cir. 2005) (“[o]ne can easily imagine a variety of harm to

American commerce arising from wholly foreign activities by foreign defendants”)

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company’s former employees or business partners, and those individuals may themselves

reside in, or relocate to, jurisdictions outside the U.S. For this reason federal courts have

previously upheld the issuance of injunctions in the trade secret cases having a geographic

scope extending beyond the U.S5. .

Even apart from these pre�DTSA decisions, however, the statute itself provides

support for a U.S. litigant to argue in appropriate circumstances that DTSA subjects

companies operating outside the U.S. to civil liability under the statute.

• First, DTSA amends certain provisions of the Economic Espionage Act

(“the EEA”), a federal criminal statute6. Section 7 of the EEA, provides that the statute

applies to conduct occurring outside the U.S. if, among other circumstances, “an act in

furtherance of the offense was committed in the United States”7.. This section was not

modified or amended by the enactment of the DTSA.

• Second, DTSA amends the definition of “racketeering activity” in 18

U.S.C. § 1961 to include violations of the EEA �� specifically §§ 1831 and 1832 relating

to economic espionage and the theft of trade secrets. This means that trade secret theft that

amounts to a criminal violation under the EEA now qualifies as a “predicate offense” for

5 See, e.g., Nordson v. Plasschaert, 674 F. 2d 1371 (11th Cir. 1982) (court upholds injunction barring

plaintiff's former foreign employee from disclosing confidential information � the geographical scope of

the injunction included the US but also extended to prohibit acts taking place in Canada or Western

Europe); Lamb$Weston, Inc. v. McCain Foods, Ltd., 941 F. 2d 970 (9th Cir. 1991) (court upholds

injunction barring defendant from producing or selling the products at issue anywhere in the world); E.I.

DuPont de Nemours and Co. v. Kolon Indus., 894 F. Supp. 2d 691 (E.D. Va. 2012) (worldwide

injunction barring South Korean company from manufacturing body armor fiber where the defendant’s

know�how arose from its misappropriation of DuPont’s trade secrets) 6 18 U.S.C. § 1831 et seq

7 18 U.S.C. § 1837(2)

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purposes of the federal RICO statute. As a result, trade secret theft can now serve as the

basis of a civil RICO claim under 18 U.S.C. § 1964(c)8.

• In the latter regard, the U.S. Supreme Court just issued on June 20, 2016, its

decision in RJR Nabisco, Inc. v. European Community, 2016 U.S. LEXIS 3925 (2016)

concerning whether a civil RICO claim may be based on injuries sustained outside the U.S.

Although the court in RJR held that a private RICO plaintiff must allege and prove

domestic injury, the Court reaffirmed the principle that the presumption against

extraterritoriality may be rebutted by “a clear, affirmative indication that [a statute] applies

extraterritoriality”.

• In view of the express extraterritorial application of the EEA as authorized

under 18 U.S.C. § 1837(2), the decision in RJR leaves open the likelihood that in cases

involving domestic injury DTSA may be applied against foreign parties, especially if a

U.S.�based plaintiff is involved and a violation of the EEA, its criminal law counterpart, is

invoked as a predicate offense for a civil RICO claim.

8 See Sedima, S.P.R.L. v. Imrex Co. 473 U.S. 479, 500 (1985) (federal criminal offenses satisfy the “predicate

offense” requirement under civil RICO)