Seventh Circuit Confirms Extraterritorial Reach of the Defend Trade Secrets Act

This is the first of two updates on the impact of Motorola v. Hytera on trade secret cases. The second update focuses on remedies.

At a Glance

• Under Motorola, a trade secret plaintiff can bring its claim against a foreign defendant in the United States even when most of the wrongful conduct occurs outside the U.S., so long as there is some act in furtherance of the misappropriation in the United States. In such cases, the trade secret plaintiff can recover damages on all of the defendant’s sales caused by the misappropriation even when the sales occur outside the United States.
• As a result of the expansive reach of the DTSA, even in cases where the trade secret theft occurs mostly outside the United States, trade secret owners should consider whether they are still able to bring a claim in a U.S. court under the DTSA.

Earlier this month, the U.S. Court of Appeals for the Seventh Circuit became the first federal appellate court to conclude that the Defend Trade Secrets Act (DTSA) applies to conduct outside the United States. The Seventh Circuit concluded that the DTSA can reach all of a defendant’s worldwide sales caused by the misappropriation, so long as — in the words of 18 U.S.C. § 1837(2) — “an act in furtherance” of the misappropriation was committed in the United States. This decision confirms that federal courthouse doors are open to trade secret plaintiffs even when much (or even most) of the wrongful conduct occurs outside the United States — and trade secret plaintiffs may recover damages even on infringing sales outside the United States.

Summary

Motorola Solutions, Inc. v. Hytera Communications Corp. Ltd., No. 22-2370, ___ F.4th ___ (7th Cir. 2024) arose after Hytera poached three Motorola engineers, “offering them high-paying jobs in exchange for Motorola’s proprietary information.” (Opinion at 2.) Hytera then used the stolen materials to develop a competing line of products that was indistinguishable from Motorola’s product. Much of the theft occurred from 2010 to 2014, but the sales of infringing products went on for years. In 2017, after the passage of the DTSA, Motorola filed suit. A jury found Hytera had violated the DTSA and, as relevant here, the district court awarded Motorola the profits from Hytera’s worldwide sales.

On appeal, one of the issues was whether the DTSA actually reached conduct outside the United States. The Seventh Circuit largely adopted the district court’s analysis, which started with noting the general presumption that U.S. statutes do not apply outside the United States. To determine if the DTSA overcame that presumption, the Seventh Circuit followed well-established Supreme Court precedent that starts by looking at the language of the statute. And while neither the private right of action in the DTSA nor the definition of misappropriation includes an express reference to extraterritorial conduct, other parts of the chapter do. In particular, 18 U.S.C. § 1837, provides “This chapter [which includes the DTSA] also applies to conduct occurring outside the United States if … an act in furtherance of the offense was committed in the United States.” Id. § 1837(2). The Seventh Circuit agreed that § 1837 “expressly rebutted the presumption against extraterritoriality.” (Opinion at 29.) This analysis, the Seventh Circuit agreed, is buttressed by Congress’s purpose for the DTSA, which was intended to address the misappropriation of U.S. trade secrets taking place outside of the United States.

Hytera’s strongest argument to the contrary was that § 1837(2) is meant to apply to only criminal offenses, not civil claims. This argument begins with the fact that § 1837 predates the DTSA by two decades and was added to Title 18 as part of the Economic Espionage Act of 1996. The Economic Espionage Act made theft of trade secrets a federal crime in many instances. Thus, at least until the DTSA was enacted, “offense” in § 1837(2) necessarily referred to only criminal conduct. (Id. at 36.)

Hytera also pointed to a 2015 Supreme Court decision that interpreted “offense” in another part of Title 18 to mean only crimes. In that case, the Supreme Court noted that “[t]he term ‘offense’ is most commonly used to refer to crime.” (See id. at 36 (discussing Kellogg Brown & Root Servs., Inc. v. United States, ex rel. Carter, 575 U.S. 650 (2015)).) As part of that holding, the Supreme Court noted, “[a]lthough the term [‘offense’] appears hundreds of times in Title 18, neither respondent nor the Solicitor General, appearing as an amicus in support of respondent, has been able to find a single provision of that title in which ‘offense’ is employed to denote a civil violation.” Kellogg Brown & Root Servs., 575 U.S. at 659. The Supreme Court in Kellogg Brown therefore held the term “offense” in another part of Title 18 meant only crimes.

In rejecting Hytera’s interpretation, the Seventh Circuit relied on the introductory language of § 1837, which provides “This chapter also applies to conduct occurring outside the United States if…” As the Seventh Circuit pointed out, Congress in passing the DTSA left unchanged that § 1837 applied to “This chapter,” which now includes the DTSA. The Seventh Circuit concluded that Congress’s decision to leave the introductory language unchanged “is more persuasive textual evidence than Hytera’s assertion that the Congress believed the term ‘offense’ could not encompass civil violations.” (Opinion at 36.)

After finding that the DTSA applied to conduct outside the United States, the Seventh Circuit turned to what constitutes a domestic “act in furtherance” of the offense necessary to reach extraterritorial conduct under § 1837(2). The Seventh Circuit rejected the argument that an act in furtherance must be a complete act of domestic misappropriation. (Order at 40.) The Seventh Circuit instead pulled from federal conspiracy law, which regularly turns on whether an act is in furtherance of a conspiracy. Using conspiracy law as an analog, the Seventh Circuit concluded that “the act in furtherance of the offense of trade secret misappropriation need not be the offense itself or any element of the offense, but it must manifest that the offense is at work and is not simply a project in the minds of the offenders or a fully completed operation.” (Opinion at 40 (quotation cleaned up).)

The Seventh Circuit also expressly rejected the argument that § 1837 requires “specific causation between the qualifying domestic act and particular foreign sales for which damages are sought.” (Id. at 39.) Thus, “[s]o long as ‘an act in furtherance of the offense was committed in the United States,’ then all damages caused by the offense are recoverable under [§§] 1836(b) and 1837(2), wherever in the world the rest of the underlying conduct occurred.” (Id. at 41 (internal citation omitted).)

In Motorola, the Seventh Circuit found sufficient that Hytera used Motorola’s trade secrets at U.S. trade shows where it marketed and demonstrated its infringing products to prospective customers. The Seventh Circuit noted that this conduct was “not just a domestic ‘act in furtherance of’ misappropriation but was itself a complete domestic act of misappropriation.” (Id.) After finding § 1837(2) was satisfied, the Seventh Circuit found the district court properly awarded Motorola all of Hytera’s worldwide profits caused by the offense. (Id.) The Seventh Circuit interpreted the “offense” to “encompass[ ] all misappropriations arising from the initial unlawful acquisitions by the former Motorola employees,” which allowed Motorola to recover “damages for all foreign sales involving the trade secrets acquired by theft.” (Id.)

Takeaway

Under Motorola, a trade secret plaintiff can bring its claim against a foreign defendant in the United States even when most of the wrongful conduct occurs outside the United States, so long as there is some act in furtherance of the misappropriation in the United States. In such cases, the trade secret plaintiff can recover all of the defendant’s unjust enrichment caused by the misappropriation even when the benefit conferred on the defendant occurs outside the United States, such as sales made outside the United States.

As a result of the expansive reach of the DTSA, even in cases where the trade secret theft occurs mostly outside the United States, trade secret owners should consider whether they are still able to bring a claim in a U.S. court under the DTSA.