In what appears to be a matter of first impression, the Seventh Circuit determined that the Defend Trade Secrets Act (DTSA) has extraterritorial reach beyond the U.S. borders. The Seventh Circuit affirmed a $407 million award to Motorola for damages won under the DTSA for foreign sales made by misappropriating trade secrets. As a result, moving forward, the DTSA may be another tool in a U.S. business’s toolbox for reigning in and deterring foreign misappropriations of its trade secrets.

The long road to applying the DTSA to foreign sales

Motorola’s trade secrets and copyright infringement suit against Chinese radio manufacturer Hytera Communications Corp. Ltd. has been winding through the courts since 2017. Motorola accused Hytera of corporate espionage, alleging that Hytera offered high paying jobs to three Motorola engineers in exchange for those employees downloading thousands of documents of Motorola’s proprietary information and copyrighted source code. Motorola alleges Hytera then used that information to sell radios that were virtually copies of Motorola’s product.

By 2020, a jury awarded Motorola $764 million, which the district court reduced by nearly $200 million. On appeal to the Seventh Circuit, Hytera conceded liability but argued that the $407 million of the award for trade secrets impermissibly applied the DTSA extraterritorially. Hytera also disputed the award of $136 million for copyright damages.

The Seventh Circuit upheld the trade secrets damages award, concluding that the DTSA applies to foreign sales. However, the Seventh Circuit concluded that the factual record did not support a finding that Motorola’s source code was downloaded from a domestic server. Because the Copyright Act, in contrast to the DTSA, only applies domestically, the Seventh Circuit concluded the copyright award must be reduced to account for foreign sales.

What this court decision means for businesses

This decision is good news for U.S. businesses that deal with foreign business partners or who have suffered from foreign infringement to the extent that it opens the door for businesses to utilize the DTSA as a tool to address foreign misappropriation of their trade secrets. However, the impact and effectiveness of this decision may be limited.

For example, the amount of damages a plaintiff is awarded under the DTSA may be limited depending on what evidence of foreign misappropriation is available to support the award calculation. Further, businesses should be aware that enforcing a domestic judgment on foreign entities remains a challenge. Generally, merely receiving a favorable judgment from a U.S. court is not sufficient, and a foreign court will separately review for elements such as jurisdiction, proper service, and that the judgment is not contrary to public policy before enforcement. Even within the U.S., recovering from a foreign defendant can be challenging if it has little to no domestic assets.

Jurisdiction may also be a limiting factor in a business’s ability to utilize the DTSA against foreign defendants. Plaintiffs pursuing DTSA claims against foreign defendants should ensure they can establish sufficient minimum contacts to support personal jurisdiction over the foreign defendant.

Taft takeaways

Though the Seventh Circuit’s decision provides clarity as to whether plaintiffs can rely on the DTSA against foreign defendants, this is just one piece of the puzzle for a business looking to protect itself against foreign infringement. Because of additional variables, such as establishing personal jurisdiction and damages and the ability to collect on a judgment, businesses should not rely solely on after-the-fact remedies to address trade secrets misappropriation. Businesses must continue to maintain robust security practices to protect their trade secrets and intellectual property.

For questions regarding proactive steps to take or how this decision may affect a business or its practices, reach out to a Taft Intellectual Property attorney for further consultation.