Where Companies Should Bring Theft of Trade Secret Claims

Contributed by Steve Grimes and Maura Levine-Patton, Winston & Strawn LLP

Bloomberg Law Professional Perspectives are long-form articles that take a closer look at current legal issues and developments impacting legal practitioners. Topics may include regulatory or statutory changes, industry or market shifts, a noteworthy government investigation, or trends in legal services operations. We also feature a range of Practical Guidance materials that help practitioners work more effectively. Become a contributor today – learn more.

On Feb. 14, 2020, phase one of the U.S.-China Economic and Trade Agreement went into effect. The agreement is an attempt to foster a better economic relationship between the two countries and end the recent trade war. While it promises trade deals in the agricultural sector, the U.S. energy export space, the financial sector, and the intellectual property arena, it also requires China to make several unprecedented changes to its current trade secrets framework.

While the recent trade agreement offers hope of increased protections for trade secret theft in China, until those changes are actually implemented in practice, trade secret disputes will continue to be litigated in the traditional forums.

Both countries committed to “ensure effective protection for trade secrets and confidential business information and effective enforcement against the misappropriation of such information,” and China agreed to expand its enforcement and investigation of trade secret theft both civilly and criminally.

This agreement brings changes to China’s management of trade secret misappropriation claims, and may influence companies’ decisions on where to bring such actions. However, until enough time passes to understand if, or to what extent, these changes are actually implemented, and what they mean in practice, companies should consider factors such as precedent and longevity when choosing a forum to bring trade secret actions. For these reasons and others, U.S. federal courts and the International Trade Commission forum remain valuable settings for trade secret misappropriation actions, even if the alleged misappropriation occurred outside the U.S.

New Trade Secret Protections

In the agreement, both the U.S. and China agree that “all natural or legal persons can be subject to liability for trade secret misappropriation.” Section B, Article 1.3. China agrees to enumerate additional acts that will constitute trade secret misappropriation, such as “electronic intrusions,” and “breach of a duty not to disclose” secret information. Section B, Article 1.4. China commits to strengthening its trade secret misappropriation by implementing a burden shifting provision, which will require “the accused party to show that it did not misappropriate a trade secret,” once certain, reliable evidence is produced. Section B, Article 1.5.

China also agrees to create a preliminary injunction measure, which would immediately stop misappropriation from occurring. Section B, Article 1.6. Finally, the agreement requires China to strengthen criminal procedures and penalties for trade secret misappropriation, and requires restrictions on providing trade secrets to Chinese government authorities. (Section B, Article 1.7-1.9).

In theory, all of these additions should make it easier for companies to bring civil and criminal cases concerning misappropriation of trade secrets in China, and many of them have been recently added to China’s existing trade secret laws. But questions remain whether these changes will be implemented in Chinese courts’ practice. Until there is more certainty regarding these changes, companies hoping to protect and enforce their trade secrets should still consider other forums.

Other Forums to Bring Trade Secret Protection Claims

U.S. Federal Courts

In the U.S., the federal courts are a useful tool for bringing trade secret misappropriation claims. Under the Defend Trade Secrets Act, an owner of a misappropriated trade secret may bring a civil action against the alleged thief if the trade secret is related to a product or service used in (or intended for use in) interstate or foreign commerce. 18 U.S.C. § 1836(b)(1). All U.S. federal trade secret laws apply to “conduct occurring outside the United States,” if the offender is a U.S. resident or if an act in furtherance was committed in the

U.S. This means there is a far-reaching arm of the law for civil jurisdiction. 18 U.S.C. § 1837(1), (2). Companies inside or outside of the U.S. can benefit alike from using the DTSA to enforce and protect their trade secrets.

The DTSA specifically provides for preliminary and permanent injunctions, which are equitable remedies that compel the offending party to refrain from using or disseminating the trade secret. As mentioned above, in the agreement, China agrees to create a preliminary injunction measure that would immediately stop misappropriation from occurring. Section B, Article 1.6. But the logistics and details of such a new measure are far from clear.

Under the DTSA, conversely, it is well established that courts may issue an injunction to prevent actual or threatened misappropriation of a trade secret. 18 U.S.C. § 1836(b)(3)(A)(ii). Additionally, when a plaintiff can show that he or she is “likely to succeed on the merits” of his or her misappropriation claim and will be “irreparably harmed…absent such relief,” a preliminary injunction can be obtained before the case has even been fully heard. See e.g., Henry Schein, Inc. v. Cook, 191 F. Supp. 3d 1072, 1077 (N.D. Cal. 2016). The preliminary injunction is one of several strong procedural tools afforded by the DTSA’s statutory scheme to protect companies’ trade secrets.

International Trade Commission Court

The ITC also offers a forum for aggrieved companies to bring theft of trade secrets complaints, pursuant to 19 U.S.C.§ 1337. Section 1337 declares a violation of certain intellectual property rights, including theft of trade secrets, to be unlawful in import trade. The importation or sale must arise from an unfair act or method of competition and a U.S. industry must be seriously harmed or prevented from forming.

Further, there must be a specific injury to the complainant. ITC cases can be particularly palatable for companies seeking an expeditious remedy: ITC proceedings typically go to trial in nine months, and allow for many of the same far-reaching discovery tools as in the federal courts. Additionally, the ITC has strong procedure for keeping precious business information confidential during litigation proceedings, meaning a company may have less concern over competitors getting ahold of the trade secrets during the litigation process.

Importantly, the ITC has statutory authority over conduct occurring in countries outside the U.S. in the course of a trade secret misappropriation investigation. In a 2011 U.S. Federal Circuit Decision, the court held that since misappropriated trade secrets are often used “in the manufacture of the imported good,” such “misappropriation will frequently occur overseas…To bar the Commission from considering such acts because they occur outside the United States would thus be inconsistent with the congressional purpose of protecting domestic commerce from unfair methods of competition in importation such as trade secret misappropriation.” TianRui Grp. Co. Ltd. v. ITC, 661 F.3d 1322, 1335 (Fed. Cir. 2011).

Although phase one of the U.S.-China trade deal portends to give stronger protections to companies who fear trade secret misappropriation, companies should not forget the tried-and-true DTSA and ITC forums for theft of trade secrets claims. Not only do the two forums hear claims where some of the activity and/or actors were outside the U.S., they also offer an invaluable armor of precedent and important confidentiality protections to keep companies’ valuable trade secrets safe during litigation.

Explore the Intellectual Property resource page for expert IP news, analysis, and more.