Court rules federal Trade Secrets law applies to conduct and sales outside the U.S.

By David Dubberly

On July 2, 2024, in Motorola Solutions, Inc. v. Hytera Communications Corp. Ltd., 108 F.4th 458 (7th Cir. 2024), the U.S. Court of Appeals for the Seventh Circuit held as a matter of first impression at the appellate level that the Defend Trade Secrets Act (DTSA) has extraterritorial reach, and therefore a trade secret owner can:

• File suit in the United States under the DTSA for misappropriation of trade secrets even when most of the theft occurred outside the country, as long as “an act in furtherance” of misappropriation was committed in the United States; and
• Recover damages on the defendant’s worldwide sales using the misappropriated trade secrets.

Background of Case

Motorola and Hytera compete globally in the market for two-way radio systems. After struggling to develop its own competing products, China-based Hytera hired three engineers from Motorola in Malaysia and offered them high-paying jobs in exchange for Motorola’s proprietary information.  Before those engineers left Motorola, and acting at Hytera’s direction, they downloaded thousands of documents and computer files containing Motorola’s trade secrets and copyrighted source code. Using this stolen material, Hytera launched a line of radios that were functionally indistinguishable from Motorola’s.  Hytera sold those radios containing Motorola’s confidential and proprietary technology in the United States and abroad.

Motorola sued Hytera for trade secret misappropriation and copyright infringement.  A jury found Hytera violated both the DTSA and the Copyright Act, awarding compensatory and punitive damages.  The district court awarded $407 million—two-thirds of which was punitive damages—under the DTSA based in part on Hytera’s profits on worldwide sales of infringing products.  The Seventh Circuit affirmed the trade secrets award.  But the appeals court concluded that the Copyright Act, in contrast to the DTSA, applies domestically only, and that the copyright damages award must be reduced to exclude foreign sales.

Court’s Reasoning on DTSA

In finding the DTSA applies internationally, the Seventh Circuit noted the general presumption that U.S. statutes do not apply outside of the United States.  However, the court concluded the DTSA overcame that presumption because it was enacted as an amendment to the Economic Espionage Act, a criminal trade secrets statute, which expressly states, “This chapter also applies to conduct occurring outside the United States if … an act in furtherance of the offence was committed in the United States.”  18 U.S.C. § 1837(2).  The court also concluded the DTSA’s legislative history provides evidence that Congress intended to protect trade secret misappropriation “wherever it occurs.”

The Seventh Circuit then reasoned Hytera had committed an “act in furtherance” of misappropriation in the United States when it advertised, marketed, and promoted products made with Motorola’s stolen trade secrets to prospective customers at trade shows in the United States.

The appeals court rejected Hytera’s argument that the district court award of punitive damages under the DTSA violated due process because Hytera’s conduct was “reprehensible,” caused “large and measurable harms” to Motorola, and unjustly enriched Hytera.

Takeaways for Employers

The Motorola decision is good news for U.S. employers that have business partners and employees in other countries because it opens the door to use the DTSA as a tool to address misappropriation of trade secrets in international business.  However, there could be challenges in using the DTSA in this context.

• First, the U.S. employer must show a foreign defendant has sufficient contacts with the United States to be subject to personal jurisdiction in U.S. courts to pursue a DTSA claim against the defendant.
• Second, even if the foreign defendant is subject to personal jurisdiction in the United States, it may have limited or no assets in the country, potentially impeding efforts to collect on a judgment.
• Third, if the foreign defendant has insufficient U.S. assets to satisfy a judgment, collecting on the judgment in the defendant’s home country will be difficult—and may be impossible as a practical matter in many countries.

For these reasons, it remains incumbent on employers doing business in the United States to maintain robust security practices to protect trade secrets.  Preventing misappropriation is easier than litigating over it, especially when the defendant is not based in the United States.

David Dubberly is a Certified Specialist in Employment and Labor Law with Maynard Nexsen.