Remedying the overseas misappropriation of U.S. companies’ trade secrets, particularly in China, was one of Congress’ core goals when it enacted the Defend Trade Secrets Act (DTSA) in 2016. But despite that goal, some district courts have wrestled over the extent to which the DTSA could apply to misconduct that occurred abroad. Now, in Motorola Sols., Inc. v. Hytera Commc’ns Corp. Ltd., the U.S. Court of Appeals for the Seventh Circuit has resoundingly affirmed the extraterritorial reach of the DTSA, finding that worldwide sales of a product incorporating misappropriated trade secrets may be recoverable as damages. The Seventh Circuit has ruled that, under the DTSA, liability can accrue for acts committed wholly abroad if some act in furtherance of the misappropriation occurred in the U.S. In the Motorola case, the marketing of the product at trade shows in the U.S. was a sufficient act in furtherance of the overseas misappropriation for a damages award including sales from around the world.
Factual Background: Motorola and Hytera compete to design, manufacture, and sell two-way radios worldwide. The trial court and Seventh Circuit both noted that Hytera targeted three of Motorola’s Malaysian employees for the specific purpose of using those engineers to “leapfrog Morotola” and become the worldwide leader in digital mobile radios (DMRs). The jury found those engineers proceeded to download thousands of Motorola’s technical documents, which Hytera used to develop DMRs that were “functionally indistinguishable” from the DMRs developed and sold by Motorola. Hytera then sold their newly developed DMRs throughout the world, including the U.S. Hytera also attended trade shows in the U.S. where it marketed the DMRs that incorporated the misappropriated trade secrets.
As the Seventh Circuit observed, “[t]he most startling fact about these appeals is that Hytera’s liability is not at issue. It concedes that it engaged in the blatant theft of trade secrets and copying of proprietary computer code.” The real question was whether the DTSA could be applied to actions–and therefore related damages–occurring outside the U.S.
After Motorola sued Hytera in the U.S. District Court for the Northern District of Illinois, Hytera argued the DTSA should not be applied to Hytera’s sale of the DMRs that took place outside the U.S. The district court judge presiding over the case, Judge Charles R. Norge, rejected this and other arguments. In 2020, a jury returned a verdict in favor of Motorola on all its claims (including the DTSA), awarding $345.8 million in compensatory damages and $418.8 million in punitive damages. Post judgment motions reduced the award on other grounds, but Judge Norge once again rejected Hytera’s arguments against extraterritorial application of the DTSA and entered judgment on damages for sales of the DMRs outside the U.S.
The Legal Standard: All federal statutes are subject to a presumption against extraterritoriality. In RJR Nabisco, Inc. v. European Community, the U.S. Supreme Court established a two-factor inquiry to determine whether a federal statute applies to actions occurring outside of the U.S. Under that test, the district court must first ask if the federal statute gives a clear and affirmative indication that it applies extraterritorially. If the court concludes that the statute does, no further analysis is required and the presumption against extraterritoriality is rebutted. But if there is no clear indication in the statute, then a district court must analyze whether conduct relevant to the statute’s focus occurred in the U.S. or a foreign country.
Turning to the legislative history of the DTSA, the Economic Espionage Act (EEA) was enacted in 1996; in connection with the EEA, Congress added Chapter 90, entitled “Protection of Trade Secrets,” to Title 18 of the U.S. Code. The EEA made the theft of trade secrets a federal crime. Congress also included §1837 to Chapter 90, entitled “Applicability to conduct outside the United States,” that had the following specific language: “[t]his chapter also applies to conduct occurring outside the United States if . . . an act in furtherance of the offense was committed in the United States.”
Two decades later, the DTSA was added to the EEA, amending Chapter 90, and creating a private right of action for trade secret misappropriation under §1836(b). Significantly, the DTSA made no changes to §1837’s extraterritorial application.
As noted above, some federal district courts have wrestled with application of the DTSA to actions abroad, including what type of act in furtherance of a conspiracy must occur in the U.S. for liability to apply. While most courts have opted for a broader application of what domestic act would qualify, some courts have taken a more restrictive view. For more, see my earlier blog post analyzing the Motorola trial court’s ruling and comparing other cases here.
So What Did the Seventh Circuit Decide? The Seventh Circuit affirmed Judge Norge’s finding that Chapter 90 should be read as a whole, combining § 1836’s civil cause of action with § 1837’s extraterritoriality application. The Seventh Circuit held the first RJR Nabisco question had been met as the Seventh Circuit found that the DTSA clearly stated it should apply extraterritorially.
Because the presumption against extraterritoriality had been overcome by the plain text of the DTSA, the only further consideration that remained was whether Congress imposed any limits on that foreign application. As noted above, pursuant to §1837, an action occurring outside the United States could violate the DTSA if “an act in furtherance of the offense was committed in the United States.”
Utilizing the DTSA’s broad definition of “use,” the Seventh Circuit considered Judge Norge’s finding of domestic use proper as “an act in furtherance of the offense” because Hytera had advertised, promoted, and marketed its misappropriated products within United States. The Seventh Circuit found that the DTSA did not require that an act of actual misappropriation occur within the U.S., but rather, simply some act that furthered the misappropriation. Applying the plain language of §1837, the Seventh Circuit interpreted that requirement consistent with the interpretation of the requirement of an overt act in furtherance of a criminal conspiracy required under federal criminal statutes. And because the domestic acts were in furtherance of a misappropriation (attending trade shows and making sales that furthered the underlying misappropriation), the Seventh Circuit affirmed Judge Norge’s finding of extraterritorial application, holding the trial court “properly awarded Hytera’s profits on all worldwide sales of products caused by the offense.”
It’s worth noting that the Seventh Circuit found that the Copyright Act could not be used to secure extraterritorial damages in this case. While it was undisputed that Hytera’s employees downloaded copyrighted source code from Motorola’s database, the Seventh Circuit found that Motorola could not establish that it occurred with Motorola’s Illinois server, a completed act of infringement that had to take place domestically-and a predicate necessary for Motorola to secure copyright damages for overseas sales.
Takeaway: Comparatively minor actions occurring domestically when coupled with more substantial violations of the DTSA overseas, can open the door to liability for substantial damages for sales occurring outside the U.S. The Seventh Circuit’s decision confirms that a far more robust set of worldwide damages are now available for trade secret misappropriation. Of course, collecting those damages from an overseas defendant will present an additional challenge, but U.S. companies now have a well-reasoned, comprehensive federal appellate decision to help them pursue those overseas sales.