EXTRATERRITORIAL APPLICATION OF U.S. LAW UNDER THE DEFEND TRADE SECRETS ACT Federal Circuit Bar Association Bench & Bar

Transcription

1 EXTRATERRITORIAL APPLICATION OF U.S. LAW UNDER THE DEFEND TRADE SECRETS ACT Federal Circuit Bar Assciatin Bench & Bar Presented by: Bryan J. Vgel Christpher S. Geyer Jhn M. McNichls September 22,

2 TODAY S PRESENTATION Overview f Defend Trade Secrets Act (DTSA) ( What s new? ) Extraterritrial Applicatin f U.S. Intellectual Prperty Law ( S what? ) Strategic and Practical Cnsideratins ( What s next? ) 2

3 OVERVIEW OF DEFEND TRADE SECRETS ACT What is it? Hw did we get here? Pertinent prvisins f DTSA Remedies under DTSA 3

4 OVERVIEW OF DEFEND TRADE SECRETS ACT Signed int law May, Passed Cngress with brad bipartisan supprt (passed Huse: 410-2, passed Senate: 87-0). Amends the Ecnmic Espinage Act f Cdified at 18 U.S.C et seq. Creates a federal civil cause f actin fr trade secret misapprpriatin. 3-year statute f limitatins frm discvery f misapprpriatin. 4

5 WHAT S NEW Previusly, federal curts heard state law-based trade secret claims nly in cases invlving parties frm different states (diversity jurisdictin). Nw nearly all intellectual prperty cases can be heard in federal curt. Actins that previusly were cnsidered t be purely lcal (e.g., departing emplyee) can nw be heard in federal curt. 5

6 HOW DID WE GET HERE? Starting in the mid-1800s, states began develping cmmn law f trade secret misapprpriatin thrugh cmmercial law f business trts. Traditinally trade secrets were prtected thrugh private civil actins. At the time, mst markets and gds were sld lcally, nt natinally. Beginning in 1980s, states adpted the Unifrm Trade Secrets Act (UTSA) UTSA is widely adpted (47 states but nt New Yrk, Nrth Carlina, r Massachusetts). Minr differences between different states based n differences in statutry language. 6

7 ESPIONAGE ACT OF 1996 (EEA) By the mid-1990s, misapprpriatin f trades secret was cnsidered an issue f natinal security. Cncerns f ecnmic espinage: By freign cmpanies By freign gvernments By thers wh wuld sell trade secrets t freign gvernments At the time the FBI had pened multiple investigatins fr trade secret theft, but it culd nt prsecute because n federal misapprpriatin statute existed. 7

8 ESPIONAGE ACT OF 1996 (EEA) EEA makes it a federal crime t misapprpriate a trade secret: (1) with intent t benefit any freign gvernment, freign instrumentality r freign agent r (2) with intent that it wuld be used in interstate r freign cmmerce. EEA made misapprpriatin a federal crime, but it did nt include a federal, civil cause f actin. 8

9 EARLY ATTEMPTS TO ENACT FEDERAL TRADE SECRET CLAIM 2012: early versin f DTSA was intrduced, but died in Senate Judiciary Cmmittee. 2014: versin included a federal cause f actin, but did nt pass. 2016: versin passed int law (finally). Several high prfile misapprpriatin cases helped pushed it thrugh. DuPnt v. Kln Industries: case fr misapprpriatin f Kevlar, resulting in nearly $1 billin jury verdict fr DuPnt. United States v. Aleynikv: case under EEA f ex-gldman Sachs cmputer prgrammer cnvicted f stealing high-frequency trading surce cde; cnvictins were reversed. TianRui Grup C. Ltd. v. ITC: Federal Circuit held that Sectin 337 f the Tariff Act gives the ITC the authrity t restrict the imprtatin f gds prduced thrugh the misapprpriatin f trade secrets, even if the acts f misapprpriatin ccurred abrad. 9

10 DEFINITION OF TRADE SECRET UNDER DTSA DTSA definitin prvides mre examples, but breadth f cverage is practically the same. DTSA (3) the term trade secret means all frms and types f financial, business, scientific, technical, ecnmic, r engineering infrmatin, including patterns, plans, cmpilatins, prgram devices, frmulas, designs, prttypes, methds, techniques, prcesses, prcedures, prgrams, r cdes, whether tangible r intangible, and whether r hw stred, cmpiled, r memrialized physically, electrnically, graphically, phtgraphically, r in writing if (A) the wner theref has taken reasnable measures t keep such infrmatin secret; and (B) the infrmatin derives independent ecnmic value, actual r ptential, frm nt being generally knwn t, and nt being readily ascertainable thrugh prper means by anther persn wh can btain ecnmic value frm the disclsure r use f the infrmatin UTSA "Trade secret" means infrmatin, including a frmula, pattern, cmpilatin, prgram, device, methd, technique, r prcess, that: (i) derives independent ecnmic value, actual r ptential, frm nt being generally knwn t, and nt being readily ascertainable by prper means by, ther persns wh can btain ecnmic value frm its disclsure r use, and (ii) is the subject f effrts that are reasnable under the circumstances t maintain its secrecy. 10

11 DEFINITION OF MISAPPROPRIATION UNDER DTSA IS IDENTICAL TO UTSA A. acquisitin f a trade secret f anther by a persn wh knws r has reasn t knw that the trade secret was acquired by imprper means; r B. disclsure r use f a trade secret f anther withut express r implied cnsent by a persn wh i. used imprper means t acquire knwledge f the trade secret; ii. at the time f disclsure r use, knew r had reasn t knw that the knwledge f the trade secret was iii. (I) (II) derived frm r thrugh a persn wh had used imprper means t acquire the trade secret; acquired under circumstances giving rise t a duty t maintain the secrecy f the trade secret r limit the use f the trade secret; r (III) derived frm r thrugh a persn wh wed a duty t the persn seeking relief t maintain the secrecy f the trade secret r limit the use f the trade secret; r befre a material change f the psitin f the persn, knew r had reasn t knw that - (I) (II) the trade secret was a trade secret; and knwledge f the trade secret had been acquired by accident r mistake; (6) the term imprper means (A) includes theft, bribery, misrepresentatin, breach r inducement f a breach f a duty t maintain secrecy, r espinage thrugh electrnic r ther means; and (B) des nt include reverse engineering, independent derivatin, r any ther lawful means f acquisitin; 11

12 DEFINITION OF USE IS BROADER IN DTSA DTSA allws a misapprpriatin claim if the trade secret is related t a prduct r service used in, r intended fr use in, interstate r freign cmmerce What des intended fr use mean? State law develped based n definitin f misapprpriatin because jurisdictinal use in interstate cmmerce was unnecessary. Bundaries f federal law culd develp based n when a trade secret is intended fr use. 12

13 REMEDIES UNDER DTSA Injunctive relief: ex parte seizure rder, temprary injunctin, permanent injunctin Damages: Gal is t restre the parties t where they wuld have been but-fr the misapprpriatin Damages may be measured by: Actual lss frm misapprpriatin (lst prfits r price ersin) Unjust enrichment Reasnable ryalty 13

14 ENHANCED DAMAGES DTSA allws up t 2x damages fr willful and malicius misapprpriatin and attrneys fees. N enhanced damages if a cmpany sues an emplyee t whm it failed t prvide ntice f statutry prvisins regarding whistleblwer immunity. The DTSA prvides whistleblwer immunity fr misapprpriatin claim against individuals prviding trade secret infrmatin t the gvernment fr the purpse f reprting r investigating a suspected vilatin f law. The stick is n enhanced damages where plaintiff failed t prvide ntice f whistleblwer immunity. 14

15 EXTRATERRITORIAL APPLICATION Applicability t cnduct utside the United States This chapter [18 U.S.C et seq.] als applies t cnduct ccurring utside the United States if (1) the ffender is a natural persn wh is a citizen r permanent resident alien f the United States, r an rganizatin rganized under the laws f the United States r a State r plitical subdivisin theref; r (2) an act in furtherance f the ffense was cmmitted in the United States. 15

16 EXTRATERRITORIALITY OF U.S. LAW GENERALLY Presumptin against the extraterritriality f American law Lng-standing cann f cnstructin (SCOTUS repeatedly recgnizes presumptin since 1804) Unless there is the affirmative intentin f the Cngress clearly expressed, we must presume it is primarily cncerned with dmestic cnditins. EEOC v. Aramc (1991) (citatins and qutatins mitted). Principal justificatins: A cuntry s law applies nly within its territrial bundaries Cmity ( interference with the authrity f anther svereign ) 16

17 MODERN EXPRESSION OF PRESUMPTION Mrrisn v. Natinal Australia Bank (2010) It is a lngstanding principle f American law that legislatin f Cngress, unless a cntrary intent appears, is meant t apply nly within the territrial jurisdictin f the United States. (Quting EEOC v. Aramc). When a statute has n clear indicatin f an extraterritrial applicatin, it has nne. A presumptin? 17

18 EXTRATERRITORIAL PRINCIPLES IN IP LAW General rule is that the patent, trademark, and cpyright acts d nt create liability fr verseas cnduct Exceptins exist in the varius branches f IP General rule always hlds fr cnduct which is entirely verseas 18

19 EXTRATERRITORIALITY IN PATENT CONTEXT Deepsuth Packing C. v. Laitram Crp. (1972) Deepsuth sld sme infringing shrimp deveiners within the U.S. and shipped cmpnents verseas fr assembly (3 bxes, assembly tk abut 1 hur) The statute [271(c)] makes it clear that it is nt an infringement t make r use a patented prduct utside f the United States. N liability fr shipping parts verseas fr assembly Cngress creates exceptin, enacting 35 U.S.C. 271(f) Liability fr supplying cmpnents frm the US fr verseas cmbinatin Micrsft v. AT&T (2007) Supreme Curt acknwledges the extraterritriality f patent law in case invlving verseas assembly (installing speech-encding sftware nt hardware) BUT, the case still cmes ut the same way as Deepsuth: [T]he presumptin is nt defeated just because [a statute] specifically addresses [an] issue f extraterritrial applicatin. 19

20 EXTRATERRITORIALITY IN TRADEMARK CONTEXT Act f infringement must ccur in the U.S. Exceptin: Supreme Curt decides Bulva Watch imprter was a U.S. citizen Cunterfeits culd reflect adversely n Bulva s trade reputatin (example f effects test) Disparate tests fr extraterritrial applicatin in reginal circuits Hw much effect is required Number f factrs Balancing vs. requiring all factrs 20

21 EXTRATERRITORIALITY IN COPYRIGHT CONTEXT N liability attaches fr cpyright vilatins verseas Subafilms v. MGM-Pathe Cmmc ns (9th Cir. 1994) Exceptin: A predicate act f infringement ccurs in the U.S. Direct infringement Levitin v. Sny Music Entm t (S.D.N.Y. 2015) Indirect infringement Gephysical Servs., Inc. v. TGS-Npec Gephysical Servs. (S.D. Tex. 2015) Damages accrue fr freign reprductin f illegally cpyrighted wrk Update Art, Inc. v. Mdiin Pub., Ltd. (2d Cir. 1988) 21

22 SUMMARY OF EXTRATERRITORIALITY IN IP CONTEXTS General principle is that U.S. intellectual prperty laws d nt create liability fr cnduct ccurring verseas Exceptins: Patent: act f supplying cmpnents frm U.S. Trademark: effect felt in U.S. Cpyright: predicate act f infringement in U.S. 22

23 APPLICATION OF GENERAL PRINCIPLES IN DTSA CONTEXT Extraterritriality f DTSA has nt been challenged If actr is a U.S. citizen r natinal ( 1837(1)) Pssible extraterritrial reach, if effects felt in the U.S. and n freign law cnflict If act in furtherance f misapprpriatin cmmitted in U.S. ( 1837(2)) Prbable extraterritrial reach, fllwing general extraterritriality fund in IP cntexts when act cmmitted in U.S. 23

24 STRATEGIC AND PRACTICAL CONSIDERATIONS Implicatins f being able t sue / be sued in U.S. federal curt fr misapprpriatin ccurring verseas Applicatin f U.S. law t verseas cnduct What des this mean fr verseas emplyers and manufacturers? 24

25 LITIGATING FOREIGN MISAPPROPRIATION UNDER DTSA Rbust discvery practices under Fed. R. Civ. P. Far brader than fund in freign jurisdictins Wide range f remedies Key: Aviding chice-f-law prblems and applying U.S. federal cmmn law t acts f misapprpriatin which might nt be illegal where they ccur Judge Mre s dissent in TianRui case 25

26 FOREIGN MISAPPROPRIATION IN THE ITC: TIANRUI Overseas misapprpriatin f U.S. trade secrets can be the subject f 337 unfair acts exclusin f imprts by the ITC Facts f TianRui: Chinese railrad wheel manufacturer wanted U.S. technlgy License negtiatins failed, s manufacturer hired emplyees frm Chinese licensee Starts making its wn wheels using U.S. trade secrets, tries t imprt them t U.S. Trade secret wner brings 337 actin befre ITC What law applies? The main issue... is whether sectin 337 authrizes the Cmmissin t apply dmestic trade secret law t cnduct that ccurs in part in a freign cuntry. 26

27 FOREIGN MISAPPROPRIATION IN THE ITC: TIANRUI Federal Circuit: n need fr cnflicts analysis [A] single federal standard, rather than the law f a particular state, shuld determine what cnstitutes a misapprpriatin f trade secrets under 337 Judge Mre (dissenting): We have n right t plice Chinese business practices. Multiple examples f ptential business practices (especially labr) frm ther cuntries that are nt allwed in U.S. 27

28 FOREIGN MISAPPROPRIATION IN U.S. FEDERAL COURT Under DTSA: U.S. trade secret law applying verseas Unifrm federal standard: key terms (e.g., trade secret, use ) already defined Lgic frm TianRui suggests develpment f federal cmmn law fr cnstructin f federal statute Nt limited t imprtatin cntext Dmestic effects nt listed amng nexus requirements in 18 U.S.C Ptential limitatin nted in TianRui i.e., n U.S. liability fr selling railrad wheels in China n lnger applies 28

29 IMPLICATIONS OF FOREIGN MISAPPROPRIATION IN U.S. COURTS Hypthetical: Yur client fires a U.S. natinal wrking verseas, wh ges t wrk fr freign manufacturer making same prduct Client learns f prduct made with its trade secrets in freign markets where it des nt cmpete Lcal trade secret prtectins weak (e.g., they dn t enfrce nn-cmpetes and encurage reverse engineering ) Q: Can yu use new ex parte seizure remedy, carried ut by federal agents, n freign manufacturer s hard drives? Cnduct nt illegal where it ccurred Statutry nexus satisfied, but n effect n U.S. cmmerce r trade secret wner 29

30 IMPLICATIONS OF FOREIGN MISAPPROPRIATION IN U.S. COURTS Overseas cmpanies incentivized t: mnitr American legal prceedings n trade secrets e.g., what is / is nt prtectable as a trade secret investigate whether they use U.S. technlgy in manufacturing prcesses adpt U.S.-style precautins against acquiring trade secrets illicitly e.g., require new hires t disclse nn-cmpete restrictins r acknwledge duty nt t disclse trade secrets hire wrkers frm ther technlgically advanced cuntries besides U.S. 30

31 SUMMARY AND WRAP-UP Questins? 31

32 32 Bryan J. Vgel New Yrk, NY Christpher S. Geyer Washingtn, D.C Jhn McNichls Washingtn, D.C