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Do trade secret damages include foreign sales?
A federal appellate court has weighed in for the first time on the question of whether the Defend Trade Secrets Act (DTSA) extends to conduct outside of the United States — thereby opening the door to damages for foreign sales. In Motorola Solutions, Inc. v. Hytera Communication Corp. Ltd., the U.S. Court of Appeals for the Seventh Circuit ruled that the plaintiff may recover all of the defendant’s profits from global sales of products incorporating the plaintiff’s trade secrets.
Tuning in
As the court put it, the case concerned a “large and blatant theft of trade secrets.” Motorola and Hytera compete globally in the market for two-way radio systems. Motorola spent years and tens of millions of dollars developing trade secrets that are embodied in its digital mobile radio (DMR) products.
For a brief period in the early 2000s, Hytera tried to develop its own competing products but ran into technical challenges. So, it came up with a new plan — “leapfrogging” Motorola by stealing its trade secrets. It poached three engineers from Motorola in Malaysia, offering them high-paying jobs in exchange for Motorola’s proprietary information. Before leaving the company for Hytera, the three downloaded thousands of documents and computer files with trade secrets and copyrighted source code.
Hytera used the information to launch a line of DMR radios that were functionally indistinguishable from Motorola’s. It sold its radios for years in the United States and abroad.
Motorola sued Hytera for trade secret misappropriation. A jury found that Hytera had violated the DTSA, and Motorola was awarded $408 million in trade secret damages. Hytera appealed.
Turning up the volume (of sales)
On appeal, Hytera conceded liability, but it challenged the damages award under the DTSA. The company argued, among other things, that DTSA damages shouldn’t have been awarded for its sales outside the United States.
The Seventh Circuit acknowledged that the DTSA is subject to the presumption against extraterritorial application. When assessing whether the presumption has been rebutted, a court must first determine whether the statute clearly indicates that it applies outside of the United States.
The DTSA, the court noted, amends a chapter of the federal law that protects trade secrets. The DTSA itself doesn’t expressly refer to extraterritorial conduct, but other parts of the chapter do. For example, one provision states that the chapter “applies to conduct occurring outside the United States if … an act in furtherance of the offense was committed in the United States.”
The Seventh Circuit affirmed the trial court’s finding that this language expressly rebutted the presumption. It also agreed with the trial court that, when enacting the DTSA, Congress was concerned with actions taking place outside the United States related to the misappropriation of U.S. trade secrets. And, like the lower court, it rejected Hytera’s argument that the statute’s use of the word “offense” limited its extraterritorial reach to criminal cases. The term, it found, can include both criminal and civil violations.
Next the appellate court turned to the question of whether an act in furtherance of the offense was committed in the United States — here the offense being the misappropriation of a trade secret. Under the DTSA, misappropriation can occur through acquisition, disclosure or use of a trade secret.
The court found that Hytera’s marketing of products embodying Motorola’s stolen trade secrets at numerous U.S. trade shows constituted domestic “use” of the trade secrets, amounting to completed acts of domestic misappropriation. It therefore upheld the damages based on Hytera’s worldwide sales of products furthered by the misappropriation, regardless of where the remainder of its illegal conduct occurred.
Copy that
The court’s ruling expands the potential relief available to trade secret owners. They can now sue under the DTSA to recover misappropriation damages for foreign sales as long “an act in furtherance” occurred in the United States — even if most of the conduct was abroad.
Copyright damages didn’t extend beyond U.S. borders
In Motorola Solutions, Inc. v. Hytera Communication Corp. Ltd., the U.S. Court of Appeals for the Seventh Circuit held that the Defend Trade Secrets Act extended extraterritorially. (See main article.) However, it declined to similarly extend the Copyright Act. A copyright owner can recover damages for foreign infringement only if 1) an initial, or “predicate,” act of infringement occurred in the United States, and 2) the domestic infringement enabled or was otherwise directly linked to the foreign infringement.
Motorola argued that the predicate infringement was the unauthorized downloading of its copyrighted source code from a server in Illinois. But the court pointed out that the code was “mirrored” on servers outside the country. Motorola’s own expert testified that there was no evidence the stolen code had been downloaded from the Illinois server.
Because the defendant’s employees who indisputably stole the code were in Malaysia, the Seventh Circuit said, it was more likely that the code was downloaded from Motorola’s server there. Without a predicate domestic infringement, Motorola couldn’t recover copyright damages for any of the foreign sales of infringing products.
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