Protecting Against the Overseas Theft of Trade Secrets

Part of a series on issues related to Manufacturers, Distributors and International Trade

The overseas theft of trade secrets is a major concern of companies with business operations outside of the United States. A recent decision by the Court of Appeals for the Federal Circuit provides U.S. companies with a new weapon to protect against trade secret misappropriation that occurs completely outside the United States. While welcome news for U.S. businesses, it is important that they remain vigilant in developing and implementing preventive measures for the international protection of their trade secrets.

In TianRui Group Co., et al. v. ITC et al., 661 F.3d 1322 (Fed Cir. Oct 11, 2011), the U.S. Court of Appeals for the Federal Circuit held that the U.S. International Trade Commission (ITC) has the authority to exclude imports of products into the United States that are manufactured outside the United States using a misappropriated trade secret process, even when the misappropriation occurs outside the United States and there are no goods being manufactured in the U.S. using the protected process.

The Court held that in determining whether a trade secret has been misappropriated, the ITC should apply U.S. federal common law of trade secret misappropriation rather than the law of any particular U.S. state or of the country where the misappropriation occurred. The application of federal common law in actions brought before the ITC involving the overseas theft of trade secrets will make it easier in many cases for U.S. companies to prove the theft of their trade secrets, because proving trade secret misappropriation is generally more difficult under the laws of many other countries.

The holding in TianRui has no bearing on the sale or importation of goods outside the United States that were manufactured using misappropriated trade secrets of a U.S. manufacturer. Consequently, U.S. companies will still need to think globally when adopting trade secret protection measures.

The definition of what constitutes a trade secret and the elements for proving trade secret misappropriation vary from country to country. Additionally, there are regional competition laws that affect trade secret protection. Taking into account these laws when drafting confidentiality and non-compete provision is necessary to ensure trade secret protection and the enforceability of the provisions or agreements. Post-employment restrictive covenants need to be drafted to take into account the relevant statutory and judicial law, because if they are drafted too broadly they will be unenforceable.

In many countries a post-employment non-compete clause is not valid unless there is separate compensation for the restrictive covenant (e.g., China and Germany). In other countries, non-compete agreements are prima facie void on public policy grounds, and therefore, particular care is required when drafting a non-competition agreement in order to ensure that it will be considered reasonable under the applicable country’s laws.

To prove access to confidential information, it is advisable for a company to require written acknowledgement of the receipt of company information from employees, consultants, subcontractors and any other third parties at the time of disclosure, as well as having these individuals sign confidentiality agreements. In some countries, having a signed confidentiality agreement is not sufficient to prove access to a trade secret.

As a result of the decision of the U.S. Court of Appeals for the Federal Circuit in TianRui, U.S. companies have a powerful enforcement mechanism to protect against the imports of competitor products into the United States if the foreign manufacturer engaged in conduct that constitutes an unfair trade practice under U.S. law.

However, when drafting confidentiality agreements, trade secret preventive measures and post-employment restrictive covenants, U.S. companies still need to consider carefully the statutory and judicial laws of the relevant foreign country and region.

Posted by Attorney Marcia S. Orgill. Orgill concentrates her practice in the area of business and personal taxation—especially complex domestic and international tax strategies.