Trade Secrets, Trade, and Extraterritoriality

When a foreign individual or company misappropriates the trade secrets of an American company, and the acts of misappropriation occur entirely outside of the United States, the trade secret law of the United States generally will not apply. This represents the principle of extraterritoriality, and identifies a major vulnerability for companies that choose to conduct operations or engage in other business abroad. In such situations, the substantive and procedural laws of another country are likely to define whether the allegedly misappropriated information is protected and has been misappropriated. Providing a domestic forum to prosecute extraterritorial infringement would substantially benefit domestic trade-secret holders. However, the current cases demonstrate the wide divergence in the manner courts apply U.S. trade secret laws to redress extraterritorial misappropriation. In the absence of a coherent framework, courts have struggled to find consistency, which, in turn, has left trade-secret owners unsure of the extent of their enforceable rights. This Article explores an illustrative case study of a trade-based approach to this problem, but examining a recent Federal Circuit opinion that provides an interesting enforcement alternative that appears to circumvent jurisdictional issues for U.S. companies. Using section 337 of the Tariff Act of 1930 (a trade statute that protects United States industry from unfair foreign competition) the Federal Circuit upheld the International Trade Commission’s (ITC) decision to apply U.S. trade secret law to misappropriation that occurred in China. By providing a domestic venue for businesses to at least partially address international violations of their trade-secret rights, the ITC has taken an important, practical step toward addressing international trade-secret espionage. This step has the potential for more immediate and far-reaching impact than the behind-the-scenes diplomatic efforts or uncertain legislative efforts that have heretofore been the United States’ primary approach to addressing this problem. The Article evaluates this trade-based alternative that bars infringing products from entering the U.S. market, and suggests it is a reasonable alternative to the gaping hole that currently exists in the traditional extraterritorial doctrinal framework. It is consistent with a similar statutory import ban in patent law, consistent with the U.S. government’s sovereign right to control trade within its borders, and provides a viable practical and efficient alternative for trade secret owners who face foreign misappropriation. However, the Article also considers the open questions and implications that arise from this approach, and other legislative alternatives that may be of some value in addressing this complicated issue.