Defense Counsel Journal

Trade Secrets Litigation Concerning Foreign Acts

Volume 85, No. 1

February 07, 2020

7e6c70a849114b5a8de42bb9acd806341 Thomas A. Counts

Thomas A. Counts

Thomas A. Counts is a partner in the IP and Complex Litigation practice groups of Paul Hastings LLP and is based in the firm’s San Francisco office. Mr. Counts’ practice focuses on complex business and technology litigation and trial practice, with an emphasis on intellectual property disputes, privacy and data security law, trade secret litigation, trademark, false advertising and unfair competition litigation, licensing litigation, competitive business torts, and litigation stemming from failed joint venture agreements.
Pade_Jeff_2018_sized Jeffrey A. Pade

Jeffrey A. Pade

Jeffrey A. Pade is an intellectual property litigator with over 20 years of experience in all phases of patent, trade secrets, and other intellectual property laws. He has directed complex and international patent and trade secrets litigation strategies concerning mechanical, semiconductor, and many other technologies for clients around the globe, and actively represents international clients in intellectual property audits, investigations, and strategic initiatives.

By: Jeffrey A. Pade and Thomas A. Counts 11This paper is written from a neutral and academic perspective and does not reflect the ultimate opinions of the authors, Paul Hastings LLP, or any clients on the issues discussed herein. The authors acknowledge the assistance of Nina Gupta and Danielle Decker, also of Paul Hastings LLP.

ACTS of trade secrets misappropriation occur both domestically and internationally, but the international portion of that theft is a growing concern to U.S. interests. The annual cost to the U.S. economy of intellectual property theft is estimated to have grown to at least $225 billion and may even approach $600 billion annually.22 The National Bureau of Asian Research, 2017 Update to the IP Commission Report, The Commission on the Theft of American Intellectual Property, available at Actors hailing from countries in the Asia-Pacific region, particularly China, commit a majority of this theft.33 Id. at 8-13. Through a mix of state and federal laws, U.S. courts are well-suited to address purely domestic disputes, as well as complex international disputes involving issues of jurisdiction, foreign discovery, choice of law, and criminality. But when the misappropriation of U.S. trade secrets interests occurs entirely overseas and does not touch the United States, the path for aggrieved parties is less clear. In such circumstances, courts must assess if U.S. trade secrets laws apply extraterritorially.

I. Extraterritorial Limits of Defend Trade Secrets Act Claims

All but two states have enacted trade secret laws adopted from the Uniform Trade Secrets Act (“UTSA”).  Although the UTSA was intended to harmonize disparate trade secret laws among the states, due to varying statutory language, interpretations, and application across the states, this harmonization has been far from perfect, and these laws have fostered forum shopping and uncertainty among businesses. For example, while many states agree that the state-enacted UTSA broadly preempts state common law claims,44 AccuImage Diagnostics Corp. v. Terarecon, Inc.,260 F. Supp.2d 941, 953–954 (N.D. Cal. 2003) (common law misappropriation claim preempted); Mortgage Specialists, Inc. v. Davey, 904 A.2d 652, 666 (D. N.H. 2006) (conversion claim preempted);Digital Envoy, Inc. v. Google, Inc.,370 F. Supp.2d 1025 (N.D. Cal. 2005), vacated on other grounds, No. 04-cv-1497 RS, 2006 U.S. Dist. LEXIS 6449 (N.D. Cal. Jan. 25, 2006) (common law and statutory unfair competition and unjust enrichment preempted);Convolve, Inc. v. Compaq Comput. Corp.,No. 00CV5141, 2006 U.S. Dist. LEXIS 13848 (S.D.N.Y. Mar. 29, 2006) (claims for tortious interference with contract and prospective business advantage preempted);Opteum Fin. Servs., LLC v. Spain,406 F. Supp.2d 1378 (N.D. Ga. 2005) (claim for quantum meruit preempted);Thomas & Betts Corp. v. Panduit Corp.,108 F. Supp.2d 968, 972 (N.D. Ill. 2000) (claim for breach of fiduciary duty preempted);MicroStrategy, Inc. v. Bus. Objects, S.A.,429 F.3d 1344 (Fed. Cir. 2005) (claim for civil conspiracy preempted). the   scope of that preemption varies dramatically from state to state.55 Compare Burbank Grease Serv., LLC v. Sokolowski, 717 N.W.2d 781 (Wis. 2006) (UTSA preempts only common law actions for trade secret misappropriation) with Silvaco Data Sys. v. Intel Corp., 184 Cal.App.4th 210, 239, modified by No. H032895, 2010 Cal App. LEXIS 771 (Cal. Ct. App. May 27, 2010) (applying preemption broadly), overruled in part on other grounds by Kwikset v. Super. Ct. (Benson),51 Cal. 4th 310 (Cal. 2011).  In 2016, Congress passed the Defend Trade Secrets Act (“DTSA”), which amended Chapter 90 of Title 18, “Protection of Trade Secrets,” to provide a federal civil cause of action for the misappropriation of trade secrets, thereby streamlining a medley of state civil statutes. Title 18 had been previously added to Chapter 90 by the Economic Espionage Act of 1996 (“EEA”), which criminalized the theft of trade secrets and conspiracies or attempts to steal trade secrets. While the EEA already had broad trade secret definitions and other language modeled from the UTSA, it did not provide a private civil action for aggrieved parties. The DTSA added a federal civil cause of action, ex parte seizure provisions, and whistleblower immunity to Chapter 90, while also relying on some pre-existing language of the EEA. This continued reliance on the EEA is potentially critical to the application of the DTSA to foreign acts outside the United States.

The DTSA applies to any misappropriation of trade secrets “for which any act occurs on or after” its effective date, May 11, 2016.6618 U.S.C. § 1836(d) (2016). The DTSA defines “misappropriation” as (a) “acquisition of a trade secret” by a person who knows or should know the secret was improperly acquired or (b) “disclosure or use of a trade secret of another without express or implied consent . . . .”77 Id.§ 1839(5)(A), (B).  The DTSA broadly protects trade secrets related to a product or service used in, or intended for use in, interstate or foreign commerce,88 Id.§ 1836(b)(1). and largely relies on the pre-existing definition of trade secrets from the EEA.9918 U.S.C.§ 1839(3) (the DTSA slightly modified the pre-existing definition of a trade secret from the EEA, which was modeled from the UTSA). With respect to the potential applicability of the DTSA to conduct that occurs outside of the United States, the DTSA’s statutory language is relatively silent.  However, unlike the DTSA, the EEA is specific on its extraterritorial reach. Section 1837 of the EEA, “[a]pplicability to conduct outside the United States” provides:

This chapter also applies to conduct occurring outside the United States if—

(1) the offender is a natural person who is a citizen or permanent resident alien of the United States, or

an organization organized under the laws of the United States or a State or political subdivision thereof; or

(2) an act in furtherance of the offense was committed in the United States.1010 Id. § 1837.

The EEA reaches two groups. First, the criminal offenses of the EEA will apply if the offender is a citizen or permanent resident alien of the United States or an organization under the laws of the United States. These U.S. entities may be held liable for criminal trade secret activities committed entirely outside the United States.  Second, the EEA’s criminal provisions will apply to foreign persons and organizations if some act in furtherance of the offense takes place on U.S. soil.1111 See 18 U.S.C. § 1837(2) (1996).

Although there is currently no case law interpreting the “act in furtherance” requirement under the EEA, this provision could conceivably apply to any individuals or entities that direct a minor act toward the U.S., including (i) emailing with another party in the U.S., (ii) conducting an interview of a potential lateral employee, a contractor, or a consultant to the company with U.S. connections, or (iii) engaging in a contract with a U.S. entity. For example, in United States v. Kolon, the United States indicted Kolon under the EEA based on plethora of alleged overseas activities, where the primary jurisdictional hooks, outside of a sting operation, largely concerned emails and phone calls directed at the Eastern District of Virginia.1212United States v. Kolon Indus., Inc., No. 3:12-CR-137, D.I. 3, Unsealed Indictment, at ¶72 (email to Virginia), ¶85 (email to Virginia), ¶98 (phone call to Virginia), ¶102 (meeting with undercover U.S. officials in Virginia), ¶109 (arranging travel for a person from Virginia) (E.D. Va. Aug. 21, 2012). In another EEA case involving Chinese defendants, extraterritorial jurisdiction was predicated on emails, Skype chats, and other activity directed from China, including conduct that caused the use of stolen software in the United States.1313United States v. Sinovel Wind Group Co., No. 3:13-CR-84, D.I. 25, Indictment at ¶24, Count 2 (EEA§ 1832 claim) (W.D. Wis. July 27, 2013). Activities like these that have only the slightest nexus to the United States are often viewed by U.S. authorities as sufficient to support jurisdiction over criminal § 1832 theft of trade secrets claims. Section 1837 of the EEA therefore provides some hook by which overwhelmingly foreign criminal trade secrets activity can fall within U.S. prescriptive or legislative jurisdiction.1414 Whether the EEA may constitutionally govern foreign conduct is a separate, but related analysis to whether a court also has personal jurisdiction over a foreign defendant before it. The difference lies between jurisdiction to adjudicate versus legislative or extraterritorial jurisdiction. See Willis L.M. Reese, Legislative Jurisdiction, 78 Colum. L. Rev. 1587, 1587-1594 (1978). Adjudicative jurisdiction generally concerns the power to resolve a dispute through the courts, while versus legislative jurisdiction involves “determining the extraterritorial reach of a statute . . . .”  Hartford Fire Ins. Co. v. California, 509 U.S. 764, 813, 113 S. Ct. 2891, 125 L. Ed. 2d 612 (1993) (Scalia, J., dissenting). Less clear, however, is whether this quasi-extraterritorial language in Section 1837 also applies to civil DTSA claims, which Congress purposefully integrated into the EEA.

As a general rule, courts presume that federal statutes should not apply extraterritorially.%||15| Courts must overcome this presumption before applying U.S. statutes to overseas conduct.1616 Once the presumption against extraterritorially is overcome, courts then apply different tests depending on the context to determine if wholly foreign conduct comes within a statute’s jurisdictional reach. In the context of antitrust claims, Courts assess if the “foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States.” Hartford Fire, 509 U.S. at 796. For example, outside of the trade secrets context, the District of Connecticut, in United States v. Ivanov,1717 175 F. Supp.2d 367 (D. Conn. 2001). analyzed the potential application of extraterritorial jurisdiction for federal statutes containing language similar to that in the DTSA. In Ivanov, the court exercised extraterritorial jurisdiction over a Russian defendant’s violations of the Hobbs Act, Computer Fraud and Abuse Act, and the access device statute because “the intended and actual detrimental effects . . .” of the defendant’s actions in Russia occurred within the United States.1818 Id. at 370. That description of the court’s jurisdictional test is somewhat misleading, however, given that the court focused on the defendant’s conduct in the United States, as opposed to the harm plaintiff suffered there. The defendant was physically located in Russia when the offenses occurred and used a computer there at all relevant times, but he ultimately accessed computers located in the United States and controlled plaintiff’s data.1919 Id. at 371. The court stated, “[t]he fact that the computers were accessed by means of a complex process initiated and controlled from a remote location does not alter the fact that the accessing of the computers . . . occurred at the place where the computers were physically located [in the United States].”2020 Id. at 371.  Notably, the court in Ivanov concluded that the Hobbs Act (18 U.S.C. § 1951), the Computer Fraud and Abuse Act (18 U.S.C. § 1030), and the access device statute (18 U.S.C. § 1029) all applied extraterritorially. The court stated there was “clear evidence that the statute[s were] intended by Congress to apply extraterritorially” because: (1) the Hobbs Act is broadly worded and manifests the purpose to punish interference with interstate commerce; (2) the Computer Fraud and Abuse Act was amended in 1996 to include any computer “used in interstate or foreign commerce”; and (3) the Access Device Statute applies “if the offense affects interstate or foreign commerce.”2121 Id. at 373-375 (internal quotation marks omitted).

Similar to the statutes at issue in Ivanov, the DTSA protects trade secrets related to a “product or service used in, or intended for use in, interstate or foreign commerce.”222218 U.S.C. § 1836(b)(1) (emphasis added). The broad interpretation of the statutes at issue in Ivanov on the basis of their reference to “foreign commerce” arguably provides support for a less stringent extraterritoriality test for DTSA claims.  However, the U.S. Supreme Court generally foreclosed that argument in Morrison v. Nat’l Austl. Bank Ltd.2323561 U.S. 247, 262-263, 130 S. Ct. 2869 (2010). In Morrison, the Court held that the inclusion of “foreign commerce” in the Securities Exchange Act’s definition of “interstate commerce” was insufficient to rebut the presumption against extra-territorial application.2424 Morrison, 130 S. Ct. at 2881-2882. Under the Morrison holding, the DTSA’s reference to “foreign commerce,” standing alone, is unlikely to influence a court to apply the DTSA to overseas conduct.2525 Although Morrison undermines one basis for exercising extraterritorial jurisdiction in Ivanov, in that case the defendant’s actions arguably touched the United States, which could have provided sufficient grounds to extend the statute territorially. Instead, courts are more likely to consider the remaining language of the DTSA for anything that might rebut Morrison’s presumption against extraterritorial application.2626 Id. at 2878 (“When a statute gives no clear indication of extraterritorial application, it has none.”).

Courts will have a few provisions to consider. First, parties will likely debate whether the extraterritoriality provisions in the EEA’s Section 1837 apply to the DTSA. Congress did not include specific language in the DTSA authorizing the extraterritorial reach of the DTSA.”2727Even if the DTSA did have extraterritorial language, it is debatable if it is constitutionally permissible to reach entirely foreign trade secrets conduct under the foreign commerce clause or another enumerated power. However, Section 1837, entitled “[a]pplicability to conduct outside the United States,” plainly states that it “applies” to “[t]his chapter,” meaning Chapter 90 of Title 18. The DTSA is an amendment to Chapter 90 and is therefore now part of Chapter 90. As such, a plain and literal reading of Section 1837 could lead courts to conclude that its extraterritorial provisions apply to the entire Chapter, which includes both the EEA and the DTSA. Under this reading, potential culpable foreign actors could argue that the language of Section 1837, subsections (1) (U.S. residents and U.S. organizations) and (2) (an act in furtherance occurs on U.S. soil) prevent the reach of the DTSA to conduct occurring entirely outside of the United States. 

Plaintiffs, however, may argue that Section 1837 should not apply to the DTSA, and that other language in the Act suggests that Congress intended the DTSA to apply to entirely extraterritorial conduct.   First, the extraterritorial language of section 1837 refers to an “offender” and an “offense,” terms typically used for criminal provisions, not a “defendant” or “claim,” which generally apply in the civil context.  Section 1837’s language also arguably references only the criminal claims in Chapter 90 given that “offender” and “offense” appear only in those provisions of the EEA.2828 See, e.g., 18 U.S.C. § 3559 “Sentencing classification of offenses” (emphasis added); Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970, 1972 (2015) (discussing how the “term ‘offense’ is most commonly used to refer to crimes … in Title 18  … where no provision appears to employ ‘offense’ to denote a civil violation….”); see also 22 C.J.S. Criminal Law: Substantive Principles § 3 (2013) ("The terms ’crime,’ ’offense,’ and ’criminal offense’ are all said to be synonymous, and ordinarily used interchangeably." (footnote omitted)). Thus, as suggested by other commenters, plaintiffs may argue that the extraterritorial language of Section 1837 refers and applies only to criminal EEA claims rather than civil DTSA claims.2929 See, James Pooley, Trade Secrets, § 2.05[7] (2016).  According to Pooley, the “DTSA did not change or amend [the ‘act in furtherance’ section of the EEA], which on its face seems awkward as applied to civil claims.”  Id.  However, prior to enactment of the DTSA, the “actin furtherance” language of section 1837 already applied to civil actions (at least in the context of criminal violations) as the “Attorney General may, in a civil action, obtainappropriate injunctive reliefagainst any violation of this chapter.” 18 U.S.C. § 1836(a) (1996).  

Second, plaintiffs may argue that other language in the DTSA supports the statute’s broad extraterritorial application. The “Sense of Congress” portion of the DTSA, although not statutory, expresses an unmistakable Congressional concern about trade secret theft “around the world,” which potentially reflects an intent to not limit the DTSA’s application to acts occurring within the United States.|3030Pub. L. No. 114-153, § 5, 130 Stat. 376 (May 11, 2016)). Consistent with that intent, section 4 of the DTSA, for example, is titled “Report on Theft of Trade Secrets Occurring Abroad,” and requires the Director of the U.S. Patent and Trademark Office to issue regular reports on the “scope and breadth of the theft of trade secrets of United States companies occurring outside of the United States” and the “threat posed” by such these acts.3131 Id. at § 4(b)(1) (emphasis added). In addition, Congress noted that “wherever [trade secret theft] occurs, [it] harms the companies that own the trade secrets and the employees of the companies[.]”3232 Id. at § 5(2). As an example, the House committee report on the DTSA states: “Misappropriation can take many forms, whether it is an employee selling blueprints to a competitor or a foreign agent hacking into a server.”3333162 Cong. Rec. H2031 (April 27, 2016).  

Given this legislative expression of concern over foreign activity, “a strong case can be made that Congress intended [the DTSA’s] reach to be coextensive with constitutional standards and limitations under the ‘effects test’ for establishing personal jurisdiction in U.S. courts over a foreign defendant.”3434 Trade Secrets,supra note 29, at § 2.05[8]. The “effects test,” as discussed below, looks to the harm, or the domestic effects of a defendant’s conduct on a plaintiff in the United States, as opposed to focusing on where the defendant’s unlawful conduct took place.  In view of these international concerns, it is difficult to reconcile why Congress did not specify the DTSA’s extraterritorial application; unless, perhaps, Congress viewed Section 1837 as applying to the DTSA with sufficient reach (and constitutionality) for its international objectives. If this was the case, ideally, Congress should have amended Section 1837 to clarify that it applies to Section 1831 and 1832 criminal “offenses” of the EEA and to Section 1836 “civil actions” of the DTSA.   

Although the legislative history of the DTSA indicates that Congress was concerned with international trade secret misappropriation, the DTSA’s potential adoption of the EEA’s “act in furtherance” requirement arguably still combats misappropriation occurring abroad as long as there is some nexus to the United States. Courts could easily conclude that application of the EEA’s “act in furtherance” language to the DTSA satisfies constitutional due process requirements, as it is not “arbitrary or fundamentally unfair” to expect application of United States law against one who commits an act in furtherance of the offense in the United States.3535 United States v. Ali, 718 F.3d 929, 944 (D.C. Cir. 2013) (addressing due process requirements when applying a U.S. criminal law to conduct outside the United States).  If the United States connection exists, then foreign actors are on notice that U.S. law may apply. Moreover, logic would hope for consistent application of Section 1837 to EEA claims and DTSA claims, thereby avoiding the awkward but rare result of potential liability for a civil DTSA claim without any threat of federal criminal prosecution under the EEA. Nonetheless, courts have not yet addressed whether the “act in furtherance” requirement is solely limited to criminal EEA claims, but both views on the issue have some merit.

If the “act in furtherance language” of the EEA is deemed not to apply, some courts might only apply the DTSA domestically, given the DTSA’s lack of any other clear statutory language on point. As such, the DTSA would only apply to conduct having sufficient nexus to the United States. Plaintiffs will press for the slightest nexus to the United States that might require minimal acts or only injurious effects in the United States. Defendants, on the other hand, will likely push for a nexus requiring domestic acts of misappropriation because “even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application.”3636 Litigants will debate the required nexus for territorial application of the DTSA because “even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application.” Kiobel, 133 S. Ct. at 1669. Accordingly, if the DTSA is determined to only apply domestically, then courts must struggle with what U.S. connection is constitutionally sufficient.

Outside of trade secrets cases, in the context of a private right of action under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), which does not apply extraterritorially, the U.S. Supreme Court requires a “domestic injury.”3737RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2108 (2016). But Courts are largely split on what a “domestic injury” entails. The Southern District of New York and other district courts have held that a domestic injury is “the location where the plaintiff suffered the alleged injury . . . .” 3838 See, e.g., Bascuñan v. Daniel Yarur Elsaca, Amended Complaint A, No. 15–CV–2009 (GBD), 2016 WL 5475998, at *5 (S.D.N.Y. Sept. 28, 2016).   The Central District of California, on the other hand, declined to follow New York and instead held that there was a domestic injury when the “defendants specifically targeted their conduct at California with the aim of thwarting [Plaintiff]’s rights in California.”3939Tatung Co. v. Shu Tze Hsu, 217 F. Supp.3d 1138, 1156 (C.D. Cal. 2016) (internal quotation marks omitted). This line of reasoning focuses not on where the injury was suffered, but where the conduct occurred that caused the injury.4040 See Cevdet Aksut Ogullari Koll. Sti v. Cavusoglu, No. 2:14–3362, 2017 WL 1157862, at *4 (D. N.J. March 28, 2017) (discussing courts’ varying approaches to defining “domestic injury”). These and other cases may be instructive in determining what connection to the United States is sufficient if, like RICO’s private right of action, the DTSA can only be extended domestically.4141 Prior to the holding in RJR Nabisco, courts determined RICO’s extraterritorial reach by applying either the “effects” or “conduct” tests.  See Wiwa v. Royal Dutch Petroleum Co., No. 01 CIV. 1909 (KMW) (HBP), 2009 WL 928297, at *4 (S.D.N.Y. Mar. 18, 2009) (“These precedents establish two kinds of tests, ’conduct’ and ’effects,’ which assess the extent to which the otherwise extraterritorial racketeering activity involved conduct in, or had sufficient effects in, the United States.”) (emphasis added).  

II. Extraterritorial Limits of State Uniform Trade Secrets Act Claims

Importantly, the DTSA was crafted as an additional claim of trade secrets protection and does not preempt state trade secrets actions. Section 1838 (“Construction with other laws”) provides:

Except as provided in section 1833(b), this chapter shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession, or territory law for the misappropriation of a trade secret….424218 U.S.C. § 1838. Because state trade secrets laws are not preempted, opportunities exist for plaintiffs to pursue state trade secrets law claims that have extraterritorial application only limited by the reach of the U.S. Constitution and state long-arm statutes. However, jurisprudence in this area is unclear, at best.

In general, a state’s adjudicative jurisdiction is limited by the Constitution’s due process clause.4343 Asahi Metal Indus. Co. v. Super. Ct. (Cheng Shin Rubber Indus. Co.),480 U.S. 102, 113, 107 S. Ct. 1026, 94 L. Ed. 2d 92 (1987) (states may not exercise judicial jurisdiction over a foreign person if to do so would run afoul of “traditional notions of fair play and substantial justice” (internal quotation marks omitted)).  With respect to foreign corporations, a court must have either general or specific personal jurisdiction.  In Daimler AG v. Bauman, 134 S. Ct.746,760‑762 (2014), the Court held that general jurisdiction typically exists only where a party is incorporated or has its principal place of business, and rejected prior law holding that the presence of a party’s office in a state is sufficient to confer general personal jurisdiction. A court may assert general or “all purpose” personal jurisdiction over a nonresident corporation only when the corporation’s affiliations with the state are “so continuous and systematic as to render [it] essentially at home in the forum State.” Id. at 761 (alteration in original) (internal quotation marks omitted).  For corporations that meet the “at home” test, a court “may adjudicate all claims against that corporation – even those entirely unrelated to the defendant’s contacts with the state.”  Sonera Holding B.V. v. Cukurova Holding A.S., 750 F.3d 221, 225 (2d Cir. 2014).  A state’s extraterritorial jurisdiction, while a separate issue, is similarly limited.4444Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-313, 101 S. Ct. 633, 66 L. Ed. 2d 521 (1981) (a state may not apply its substantive law if to do so would be fundamentally unfair). When testing the due process limits on extraterritorial jurisdiction, the Supreme Court, confusingly, relies on tests that are similar to those used when weighing personal jurisdiction. In Hellenic Lines Ltd. v. Rhoditis, the court stated “[t[here must be at least some minimal contact between a State and the regulated subject before it can, consistently with the requirements of due process, exercise legislative jurisdiction.”4545 398 U.S. 306, 314 n.2 (1970). See also McCluney v. Jos. Schlitz Brewing Co.,649 F.2d 578, 581 (8th Cir.), aff’d, 454 U.S. 1071 (1981) (observing that until Hague “it was unclear whether the due process limitation upon a state’s extraterritorial application of law mirrored the due process analysis for determining the limits of a state court’s judicial jurisdiction.”). For example, in Home Insurance Company v. Dick, the Court concluded that a Texas insurance statute could not be applied to invalidate a provision contained in an insurance policy that had been issued in Mexico because the contacts with Texas were lacking.4646281 U.S. 397, 407-410 (1930). Without sufficient contacts, the Court concluded that Texas was without power to apply its law to alter the insurance contract without violating due process.4747 See id. at 408. Thus, the Constitution does not permit a state to apply its law when the contacts between it and the transaction are too attenuated.4848 See John Hancock Mut. Life Ins. Co. v. Yates299 U.S. 178, 182, 57 S. Ct. 129, 81 L. Ed. 106 (1936), (examining the relationship between a transaction to be regulated and the state when the contacts are attenuated); see also Hague, 449 U.S. at 310-311 (“Dick and Yates stand for the proposition that if a State has only an insignificant contact with the parties and the occurrence or transaction, application of its law is unconstitutional.”). In the context of legislative jurisdiction, Courts may therefore look for guidance in the contact requirements of adjudicative jurisdiction.

Under specific or “conduct-linked” personal jurisdiction standards, the inquiry “depends on an affiliatio[n] between the forum and the underlying controversy, principally, activity or an occurrence that takes place in the forum State and is therefore subject to the State’s regulation.”4949Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919, 131 S. Ct. 2846, 2851 (2011) (alteration in original) (internal quotation marks omitted). For a court to have specific jurisdiction over a nonresident defendant, the plaintiff must allege facts establishing that (i) the defendant has “purposefully avail[ed] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws” and (ii) the plaintiff’s claims “aris[e] out of or relate[] to the defendant’s contacts with the forum.”5050 J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 880, 131 S. Ct. 2780, 2787-2788 (2011) (internal quotation marks omitted); see also Walden v. Fiore, 134 S. Ct. 1115, 1121 (2014) (“the defendant’s suit-related conduct must create a substantial connection with the forum State”).   “The fact that harm in the forum is foreseeable [] is insufficient for the purpose of establishing specific personal jurisdiction over a defendant.”5151 In re Terrorist Attacks on September 11, 2001, 714 F.3d 659, 674 (2d Cir. 2013); see also J. McIntyre, 131 S. Ct. at 2788-2789 (rejecting the notion that the foreseeable effects of a defendant’s actions can be used to establish specific jurisdiction). Instead, to establish specific personal jurisdiction, the plaintiff must allege facts showing that the defendant took “intentional” actions “expressly aimed” at the forum.5252 Walden, 134 S. Ct. at 1124 n.7.

If the due process limitation upon a state’s extraterritorial application of law should mirror the due process analysis for determining the limits of a state court’s judicial jurisdiction, then in the trade secrets context, for the statute to apply a foreign defendant must have conducted some of the culpable activity within the forum State, invoking the benefits and protections of its laws, such that the plaintiff’s claims arise out of or relate to the contacts with the forum. Unfortunately, it is unsettled if the contact requirement for extraterritorial application of laws should closely mirror that developed for judicial jurisdiction, if at all. Courts are rarely clear on these points, often convoluting the adjudicative and legislative jurisdictional analyses.5353 See, e.g., Westco Sci. Instruments, Inc. v. Georgiou, No. CV064005637S, 2006 Conn. Super. LEXIS 1834 (Conn. Sup. Ct. June 21, 2006) (questioning whether the Connecticut Uniform Trade Secrets Act has extraterritorial effect).  For purposes of discussion on this issue, California’s Uniform Trade Secrets Statue (“CUTSA”) presents a noteworthy example. 

Substantively, a claim under California law for trade secret misappropriation shares similarities to a claim under the DTSA.5454 See Cal. Civ. Code § 3426.1 (setting forth the elements of a CUTSA claim). Unlike Section 1837 of the EEA, however, the CUTSA is silent on its extraterritorial application. Similar to federal law, California courts recognize a presumption against a statute’s extraterritorial application,5555 Sullivan v. Oracle Corp., 51 Cal.4th 1191, 1207 (Cal. 2011) (“However far the Legislature’s power may theoretically extend, we presume the Legislature did not intend a statute to be operative, with respect to occurrences outside the state . . . .”) (internal quotation marks omitted).  As under federal law, whether the CUTSA applies extraterritorially is considered a merits question.  Meggitt San Juan Capistrano, Inc. v. Yongzhong, 575 Fed. Appx 801, 802–803 (9th Cir. 2014) (“Subject matter jurisdiction ‘refers to a tribunal’s power to hear a case’ and presents a separate question from whether the California Uniform Trade Secrets Act [] applies extraterritorially.”) (quoting Morrison, 561 U.S. 247). “unless such intention is clearly expressed or reasonably to be inferred from the language of the act or from its purpose, subject matter or history.”5656 Sullivan, 51 Cal.4th at 1207. A recent case from the Northern District of California applied this presumption and concluded that the plaintiff must show that some conduct occurred in California for the CUTSA to apply. 

The California plaintiff in Cave Consulting Group v. Truven Health Analytics, sued its competitor alleging patent infringement; misappropriation of trade secrets under the DTSA, CUTSA, and the Michigan Uniform Trade Secrets Act; unfair competition under California law (“UCL claim”); violations of the Lanham Act; and claims under California and Michigan common law.5757 No. 15-cv-02177-SI, 2017 WL 1436044 (N.D. Cal. April 24, 2017). The plaintiff’s problems with the defendant began when the plaintiff started pursuing the defendant’s existing client in Pennsylvania.5858 Id. at *1.   Once the defendant determined that the client account might be in jeopardy, the defendant allegedly requested the plaintiff’s confidential presentation materials from plaintiff’s former client in Rhode Island.5959 Id.   The  defendant allegedly obtained plaintiff’s confidential materials, and used them to retain its client in Pennsylvania and secure other clients and develop new products in unspecified locations.6060 Id. at *2.   The court noted that there were “no allegations that any conduct occurred in California.”6161 *6. The Court did not discuss whether the plaintiff’s confidential materials may have been stored or shared through a California server.

After acknowledging California’s common law presumption against extraterritoriality, the court noted that neither party cited authority to rebut the presumption.6262 Id. Accordingly, the court held the CUTSA did not apply to the conduct occurring outside of California, stating: “the California Supreme Court has made clear that [extraterritorial] limitations are presumed to be present unless the legislature’s contrary intention ‘is clearly expressed or reasonably to be inferred from the language of the act or from its purpose, subject matter or history.’”6363 Id. (quoting O’Connor v. Uber Techs., Inc., 58 F. Supp.3d 989, 1004 (N.D. Cal. 2014)). The Cave Consulting court did not address whether it may have been sufficient that the plaintiff resided in California and allegedly suffered harm there due to the trade secrets misappropriation. 

Nonetheless, the court did just such an analysis when analyzing the plaintiff’s UCL claim.6464 Id. Under a relatively well-developed line of California cases, the court observed that the UCL applies to “out-of-state conduct, especially when the plaintiff suffered in-state harm” (the so-called “effects test”).6565 Id. Several other California cases likewise hold that despite California’s presumption against extraterritoriality, and the lack of legislative history clearly rebutting that presumption, UCL claims are subject to the effects test.6666 See, e.g., Speyer v. Avis Rent a Car Sys., Inc., 415 F. Supp.2d 1090, 1098 (S.D. Cal. 2005) (“While the text of the UCL is silent as to the intended geographic application of the statute, Plaintiffs cite two cases for the proposition that California residents may assert a UCL claim even though the defendants’ wrongful conduct occurred outside California[.]”); Norwest Mortg., Inc. v. Super. Ct. (Conley), 72 Cal.App.4th 214, 223 (Cal. App. 1999) (discussing legislative history and noting that when the UCL was amended in 1992 “then-existing law authorized injunctive relief against unfair competition consisting of conduct occurring in other states that caused injury in California”); Adobe Sys. Inc. v. Blue Source Grp., Inc., 125 F. Supp.3d 945, 972 (N.D. Cal. 2015) (“Even assuming that Blue Source’s sales of infringing products occurred out-of-state, Adobe—as a California resident who allegedly suffered harm in California—may still properly bring a cause of action under the UCL.”) (citing Norwest Mortgage, 72 Cal.App.4th at 222). If some courts are willing to apply the UCL extraterritorially through the effects test, this same logic could be applied to the CUTSA, given that both statutes are silent on extraterritorial reach and have similar legislative intent. Such an extension has occurred in two unreported California decisions. 

In TSMC, North America v. SMIC Americas, the court, in an unpublished decision, concluded that the CUTSA applies to “claims caused by wrongs outside California that cause damage in California . . . .” (i.e., the effects test).6767No. RG04-156932, 2004 WL 5257661 (Cal. Sup. Ct. Sept. 23, 2004). It is unclear from the opinion how much of the alleged conduct occurred in California. Likewise, in Applied Materials, Inc. v. Advanced Micro-Fabrication Equipment, Inc., the court applied the effects test, and summarily held that the plaintiff stated a CUTSA “claim in which California law may be applied extraterritorially.”6868No. C07-05248JW, *2 (N.D. Cal. Feb. 29, 2008) (order granting in part and denying in part Defendants’ various Motions to Dismiss). Without  re-stating the plaintiff’s allegations, the court found that the plaintiff adequately “alleged that Defendants misappropriated its trade secrets and caused injurious effects in California.”6969 Id. The court relied on Ready Transp., Inc. v. AAR Mfg., Inc.,7070No. 02:06-cv-1053-GEB-KLM, 2006 WL 2131308, at *3 (E.D. Cal. Jul. 27, 2006). for the proposition that “California law applies where an out-of-state defendant’s conduct causes injury in California.”7171 Id.   Ready, however, also involved a UCL claim. Thus, Applied Materials provides support for the proposition that, as with the UCL, the effects test should apply to CUTSA claims.7272Assuming a plaintiff is successful in convincing a court to apply a state statue to overseas conduct, it may still face choice-of law battles, which can have a significant impact on issues like damages and injunctive relief (both areas where foreign trade secrets laws, assuming they even exist, differ from UTSA-modeled trade secrets laws, particularly as applied by foreign authorities).

Similarly, at least one federal court interpreting the Illinois Trade Secrets Act (“ITSA”) determined that the law “authorizes broad geographic application,” notwithstanding Illinois law denying extraterritorial effect to a statute unless its language appears to provide for such application.7373 Miller UK Ltd. v. Caterpillar Inc., No. 10-cv-03770 , 2017 U.S. Dist. LEXIS 49929, at *23-24 (N.D. Ill. Mar. 31, 2017). The ITSA specifically states that “a contractual or other duty to maintain secrecy or limit use of a trade secret shall not be deemed to be void or unenforceable solely for lack of durational or geographical limitation on the duty.”7474 Id. at *24. The court thus applied ITSA to a nonresident entity and conduct occurring outside of Illinois.7575 Id.

Trade secrets plaintiffs pursuing state UTSA claims are not currently foreclosed from pursuing an “effects test” for extraterritorial trade secret conduct when they cannot present evidence satisfying the “conduct test.” Depending on how courts interpret the DTSA, this could result in the unique situation where the state’s UTSA potentially has a broader extraterritorial reach than the DTSA. Because the DTSA does not preempt state trade secret claims, it is possible that a federal court would apply the effects test to a state UTSA claim, while refusing to do so for a DTSA claim in the same action. Aggrieved plaintiffs should therefore consider asserting both DTSA and state law trade secrets claims where the conduct occurs overseas, while foreign defendants should carefully analyze and potentially contest the constitutionality of those claims.7676 In the Ninth Circuit, the due process nexus requirement “serves the same purposes as the ‘minimum contacts’ test in personal jurisdiction,” which effectively allows courts to assert jurisdiction over defendants when that should be reasonably anticipated. United States v. Klimavicius-Viloria, 144 F.3d 1249, 1257 (9th Cir. 1988), citing World-Wide Volkswagon Corp. v. Woodson, 444 U.S. 286, 297 (1980).

Finally, even if aggrieved plaintiffs are foreclosed or unsuccessful in bringing trade secrets claims under the DTSA and state law for conduct that occurred entirely overseas, they may still have options. In TianRui Group Co. v. ITC, the court held that section 337(a)(1)(A) (“[u]nfair methods of competition and unfair acts in the importation of articles … into the United States[.]”) (first and second alteration in original) of the Tariff Act of 1930 encompassed trade secrets misappropriation and applies extraterritoriality.7777661 F.3d 1322, 1327 (Fed. Cir. 2011). “To bar the Commission from considering such acts because they occur outside the United States would thus be inconsistent with the congressional purpose of protecting domestic commerce from unfair methods of competition in importation such as trade secret misappropriation.”7878 Id. at 1335. In determining that Section 337 applies extraterritoriality in the trade secrets context, the Circuit court highlighted the congressional intent to cover conduct abroad and that Section 337 focuses on an inherently international transaction—importation.7979 Id. at 1333. However, the dissent in TianRui disagreed, finding that “there is no basis for the extraterritorial application of our laws to punish TianRui’s bad acts in China).8080 Id. at 1342. Thereafter, in Sino Legend (Zhangjiagang) Chemical Co. v. ITC, another case where all of the alleged acts of misappropriation occurred overseas, Sino Legend renewed that extraterritorial challenge.8181137 S. Ct. 711 (2017). Sino Legend eventually pursued the issue in a petition for certiorari and the Chinese government, in the first instance ever, filed an amicus brief in support of Sino Legend. Because the Court declined review, the holding in TianRui still stands. For now, the ITC is the undisputed forum for trade secrets disputes involving imported goods where all of the acts of misappropriation occurred overseas.

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