Seventh Circuit Explores Copyright and Trade Secret Extraterritoriality

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In Motorola Solutions, Inc. v. Hytera Communications Corp. Ltd., the Seventh Circuit  recently addressed the extraterritorial reach of two federal intellectual property statutes, the Defend Trade Secrets Act (DTSA) and the Copyright Act.  The court held that the DTSA does apply extraterritorially and allowed recovery on that basis. The court, however, rejected the recovery of extraterritorial damages under the Copyright Act for foreign activity under the predicate act doctrine because there was no proven predicate act of domestic infringement.  Motorola is an important decision on the extraterritorial reach of U.S. intellectual property laws and shows that the courts are applying the Supreme Court’s two-step methodology on extraterritoriality, albeit with some wrinkles in the copyright context.

The Case and the Presumption

The case, along with the actual decision, is complicated, involving corporate espionage and millions of dollars of trade secrets concerning high-end digital mobile radio products. Hytera decided to “leapfrog” Motorola in this field by stealing Motorola’s trade secrets, a scheme that Hytera did not contest on appeal.  Hytera challenged the jury’s award of damages under the Copyright Act and DTSA, and the district court reduced the award to $543.7 million in compensatory and punitive damages.  On appeal, Hytera argued against the damages award on a variety of bases, including that it involved an impermissible extraterritorial application of the Copyright Act and the DTSA because the compensatory damages were based, in part, on activity outside of the United States.

On this question of extraterritoriality, the Seventh Circuit reached different outcomes with respect to the Copyright Act and the DTSA.  For both statutes, the Court faithfully applied the two-step methodology of RJR Nabisco, Inc. v. European Community (2016). Under RJR Nabisco, a court at step one must determine whether the presumption against extraterritoriality has been rebutted. The presumption is rebutted if the statute gives “a clear, affirmative indication” that Congress intended the statute to apply extraterritorially.  If the presumption is rebutted, then a court must assess the statute’s extraterritorial scope based “on the limits Congress has (or has not) imposed on the statute’s foreign application.”

If the presumption has not been rebutted at step one, then a court must turn to step two and assess whether the case nevertheless involves a domestic application of the statute.  To do so, a court looks at the “focus” of the statute. “If the conduct relevant to the statute’s focus occurred in the United States,” RJR Nabisco directs, “then the case involves a permissible domestic application even if other conduct occurred abroad; but if the conduct relevant to the focus occurred in a foreign country, then the case involves an impermissible extraterritorial application regardless of any conduct that occurred in U.S. territory.”

The Extraterritorial Reach of the DTSA

In a question of first impression for any circuit, the Seventh Circuit held that the DTSA rebutted the presumption against extraterritoriality at step one of the RJR Nabisco framework.  The court noted that this act, adopted in 2016, creates a private, civil cause of action for trade secret infringement (18 U.S.C. § 1836(a)) on top of an existing criminal prohibition established by the Economic Espionage Act of 1996 (EEA).  There was no dispute that Congress intended the criminal prohibition to apply to foreign activity because the EEA specifically states that “[t]his chapter also applies to conduct occurring outside of the United States if … an act in furtherance of the offence was committed in the United States.” This extraterritorial provision is codified at 18 U.S.C. § 1837, and the chapter to which it refers includes the DTSA’s private right of action. The Seventh Circuit agreed with the district court’s reasoning that, even though the DTSA itself is silent as to its extraterritorial application, its placement within the EEA confirms that Congress intended the DTSA to apply extraterritorially.

Finding the presumption rebutted, the court then turned to assess whether the defendant’s conduct fell within the DTSA’s extraterritorial reach.  Section 1837 reaches conduct outside of the United States if there is an “act in furtherance of the offense” within the United States.  To determine if there was an “act in furtherance,” the court turned to the definitions of the misappropriation of a trade secret under the DTSA, which includes acquisition of the secret by improper means, disclosure of a trade secret, or use of a trade secret. The court took an expansive view of “use,” agreeing with the district court that it entails “any exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant.” Use occurred in the United States, the court reasoned, because Hytera “advertised, promoted, and marketed products embodying the stolen trade secrets at numerous trade shows.”

The court confirmed that these constituted acts in furtherance of the offense, permitting the extraterritorial application of the DTSA.  The court treated “acts in furtherance” in a manner akin to federal conspiracy law, concluding that section 1837(2) neither requires a completed act of misappropriation within the United States nor specific causation between the qualifying domestic act and the relevant foreign sales.  This approach contrasts with the Copyright Act (discussed below), which does require specific causation between a completed act of domestic infringement and the relevant foreign acts.  The court, therefore, took a capacious approach to the domestic acts that can trigger the extraterritorial application of the DTSA.

Copyright Law’s Predicate Act Doctrine for Extraterritorial Damages

Motorola argued that it was also entitled to damages under the Copyright Act for Hytera’s worldwide sales of infringing products.  In contrast with the DTSA, the court concluded these damages were not available under the facts of this case.

Applying the RJR Nabisco methodology, the Seventh Circuit concluded that nothing in the Copyright Act rebuts the presumption against extraterritoriality at step one. While this conclusion is uncontroversial, the court strangely asserted that the Supreme Court has expressly held as much, citing Impression Products, Inc. v. Lexmark International, Inc. (2017). But Impression Products made no such holding. Aside from being a patent case, Impression Products involved the first sale doctrine for intellectual property rights, also known as exhaustion.  The Supreme Court has held that sales of patented and copyrighted items abroad exhaust U.S. rights, but, as I have explained elsewhere, exhaustion has nothing to do with the presumption against extraterritoriality.

The Seventh Circuit then moved to step two of RJR Nabisco, the focus analysis. But instead of seeking to identify the focus of the Copyright Act, the court applied its pre-RJR Nabisco predicate act doctrine.  Under that rule, a copyright owner can recover damages for foreign activity if there is an act of domestic copyright infringement that enables or is otherwise directly linked to the foreign activity for which damages are sought.

The court ultimately rejected the copyright damages here because it saw no domestic act of copyright infringement on which to ground the predicate act doctrine.  Motorola argued that Hytera had accessed Motorola’s server in Illinois to download the copyrighted code and that this download constituted an act of domestic infringement. The district court agreed with this “server theory,” but the Seventh Circuit rejected it because Motorola failed to demonstrate that Hytera had in fact downloaded the software from the Illinois server.  Servers can be mirrored around the globe, meaning that there is a duplicate copy of a database (or subsets thereof) on a different server so that the second server “mirrors” the original.  Mirrors check with the main server and other “mirrors” to update data. In this case, Motorola’s U.S. server in Illinois was mirrored on other servers outside of the United States.

While Hytera undeniably downloaded the code from a Motorola server, Motorola failed to prove Hytera had accessed the Illinois server. Absent proof of a download from a U.S.-based server, the court held, there was no domestic act of copyright infringement, regardless of whether the foreign server that was accessed mirrored the Illinois server. The court reasoned that “[a] contrary rule would stretch U.S. copyright law far beyond its proper borders, giving global businesses an incentive to store local copies of copyrighted files in the United States as an insurance against intellectual property theft worldwide.” Thus, there must be proof of actual use of a domestic server, a holding that will constrain the application of U.S. copyright law in the context of mirrored servers.

A Missed Opportunity

From an extraterritoriality perspective, the decision presents a missed opportunity.  The court applied the predicate act doctrine at step two of its analysis without first asking whether that was appropriate.  As I have noted elsewhere, it is not entirely clear that the predicate act doctrine survives the Supreme Court’s modern case law on the presumption against extraterritoriality.  The Seventh Circuit’s failure to engage with that question is particularly surprising because the district court in the case did raise the question.

The Supreme Court’s analysis in WesternGeco LLC v. ION Geophysical Corp. (2018), to be sure, exhibits some similarities to the predicate act doctrine. In WesternGeco, the Supreme Court confronted the allowability of damages under the Patent Act for sales outside of the United States. Eschewing an analysis of step one, the Supreme Court held that the case could be resolved at step two. Because the Patent Act’s damages provision depends on the relevant act of infringement, the Court turned to the relevant provision on infringement, 35 U.S.C. § 271(f), a unique provision that defines patent infringement as the exportation of components of a patented invention (when other elements are met). The Court reasoned that the focus of this statute was the supplying of those components from the United States, a domestic act.  Damages that flowed from that infringement were thus permissible as a domestic application of the statute, although the Court noted that proximate cause could still limit the extent of damages.

The predicate act doctrine operates similarly: it turns on a domestic act of infringement from which the relevant damages may flow.  The predicate act doctrine thus is consistent with WesternGeco, but the Seventh Circuit did not perform a similar analysis at step two to reach the conclusion that the predicate act doctrine is effectively the same as the focus analysis.

The legal landscape has shifted a little since WesternGeco, however. The Supreme Court’s recent trademark extraterritoriality decision, Abitron Austria GmbH v. Hetronic International, Inc. (2023), suggests that the Supreme Court may be pushing back against expansive views of extraterritoriality for intellectual property rights.  In Abitron, the Court rejected an approach resembling a predicate act theory and instead tied the extraterritorial reach of the Lanham Act (the federal trademark statute) to where the use in commerce of a trademark occurred.  Interestingly, the primary issue on appeal was damages and the relevant scope of injunctive relief, but the Supreme Court’s decision focused entirely on liability.

Abitron’s approach generally is viewed as narrowing the potential extraterritorial reach of federal trademark law.  As Anshu Garg and I have argued, we think the decision left many questions unanswered, disrupted decades of precedent, and ultimately is wrong. Regardless, as we also explore, Abitron does suggest that a robust predicate act doctrine may conflict with the modern presumption against extraterritoriality. As a result, the Seventh Circuit missed an opportunity to engage with the continued vitality of the predicate act doctrine under the focus analysis of step two, although it did ultimately reject extraterritorial damages in the case as a factual matter.

Conclusion

The Seventh Circuit’s decision in Motorola is an important decision for the extraterritorial reach of both the Copyright Act and for the DTSA.  While I believe the court missed an opportunity to explore the consistency of the predicate act doctrine for copyright damages, its analysis of the DTSA is a robust, laudable example of how to apply step one of the RJR Nabisco framework.