United States: Happy Anniversary, DTSA: The Defend Trade Secrets Act At Five

On May 11, 2016, the Defend Trade Secrets Act ("DTSA") was signed into law with sweeping bipartisan support, passing unanimously in the Senate, and by a vote of 410-2 in the House.¹ In the current political climate, passing any significant piece of legislation by such a lopsided vote seems almost unthinkable. The Act's popularity can be attributed to an objective that seemingly everybody could agree upon—protecting the intellectual property of United States companies—and the crucial decision to create a federal statute that largely mirrored existing state law.

Three key goals of the statute were: (1) to create a federal civil remedy, bringing the rights of trade secret owners "into alignment with those long enjoyed by owners of other forms of intellectual property," (2) to promote uniformity by providing for a "single, national standard for trade secret misappropriation with clear rules and predictability for everyone involved," (3) and to better address the concerns of "a globalized and national economy" where trade secrets can readily be spirited across state lines and "beyond the reach of American law."² With the DTSA's fifth anniversary this month, we take stock of how much progress has been made towards accomplishing those goals.

Access to Federal Courts

The DTSA's first goal was essentially accomplished as soon as it was enacted. It allows plaintiffs to bring an action for any trade secret that relates to "a product or service used in, or intended for use in, interstate or foreign commerce."³ This means nearly all trade secret plaintiffs now have a right to file suit in federal court. The more interesting question is the extent to which parties have taken advantage of that right.

A recent Lex Machina study found that, after holding steady for several years, trade secret filings in federal court increased by 30% between 2015 and 2017—jumping from 1,075 in 2015 to 1,396 in 2017. Federal trade secret filings have remained at that level since, with 1,397 cases filed in 2018, and 1,401 cases filed in 2019.⁴

The Lex Machina report does not address state court trade secret filings, which are more challenging to track due to variability in electronic filing. However, our review of data obtained through Courthouse News shows that state court trade secret filings stayed roughly the same during this time period, or declined slightly.⁵ This confirms that the increase in federal trade secret cases can be attributed to the DTSA, not just to an increase in trade secret cases generally.

Uniformity

While the DTSA was intended to promote uniformity, the Act explicitly does not preempt state law.⁶ The statute also adopted definitions of key terms such as "misappropriation" from the Uniform Trade Secrets Act ("UTSA"), on which state statutes are modelled, "to make clear that this Act is not intended to alter the balance of current trade secret law or alter specific court decisions."⁷ These choices greatly facilitated the Act's passing, but also significantly undermined the goal of uniformity.

Rather than providing consistent outcomes across jurisdictions, so far the DTSA has taken the shape of the law of the forum state. In a typical example, the Ninth Circuit has stated that the California UTSA is "analogous" to the DTSA,⁸ and that federal and state claims can be analyzed together because the elements of each are "substantially similar."⁹ Other courts agree,¹⁰ and a number have analyzed federal and state trade secret claims exclusively under state law.¹¹ In In re Patriot National, for example, the court mirrored its rulings under the state statutes for the DTSA claims.¹²

The result is that state law differences are being imported into the DTSA, creating the same "patchwork" of law the statute was intended to rectify. Perhaps the best example of this is the courts' differing treatment of "inevitable disclosure," one of the key areas where trade secret law differs among states. The doctrine essentially allows a plaintiff to prove misappropriation by showing a defendant's new job is so similar to their prior one that they "inevitably" will make use of trade secrets. The DTSA steered clear of inevitable disclosure by prohibiting injunctions that prevent "a person from entering into an employment relationship," and requiring conditions placed on employment to be "based on evidence of threatened misappropriation and not merely on the information the person knows." It also precludes injunctions that would "otherwise conflict with" state law prohibiting restraints of trade.¹³ In California, where the doctrine has long been rejected, federal courts find that there is no claim based on inevitable disclosure under the DTSA.¹⁴ But a series of cases in the Northern District of Illinois, which sits in the Seventh Circuit—author of the country's leading opinion upholding inevitable disclosure¹⁵—have reached the opposite conclusion.¹⁶ Other federal courts have also followed state law on this issue¹⁷ and, where it is undecided under state law, have declined to determine its applicability under the DTSA.¹⁸

Federal trade secret law also lacks uniformity on the important issue of when, and to what extent, a plaintiff must identify its trade secrets—an issue which the DTSA does not expressly address. A growing number of courts are requiring plaintiffs to identify their trade secrets with reasonable particularity before taking discovery.¹⁹ This has long been the case in California, where many district courts have taken their cue from California's state statute requiring a plaintiff to identify its trade secrets with "reasonable particularity."²⁰ But some courts reject pre-discovery identification altogether.²¹

The DTSA is still young, however. Uniformity may develop over time as more cases make their way to appellate courts. If the Supreme Court gets a chance to weigh in, it may set the statute back on course to providing more of the consistency Congress hoped to achieve.

Protection for a Global Economy

So far the DTSA has achieved more success with its third goal. Led by the Northern District of Illinois's decision in Motorola Sols., Inc. v. Hytera Commun. Corp. Ltd., ²² several district courts around the country have now held that the DTSA has extraterritorial effect. ²³ These holdings are based on 18 U.S.C. § 1837, which applies where (1) the offender is a citizen or permanent resident of the U.S. or organized under U.S. law, or (2) "an act in furtherance of the offense" was committed in the U.S.²⁴

Courts have found acts "in furtherance" where meetings in the U.S. purportedly led to later misappropriation, even though those contacts did not themselves constitute elements of misappropriation.²⁵ Directing communications related to trade secrets to the U.S. and accessing U.S.-based servers may also be sufficient.²⁶ One court has applied the DTSA where the purported act in furtherance was performed by a third party, rather than the defendant.²⁷ A defendant's activities in the U.S. are unlikely to satisfy the "in furtherance" requirement, however, when there is not a clear nexus with a DTSA violation.²⁸ While the case law on extraterritoriality may shift as these issues work their way through appellate courts, at least for now the DTSA has been interpreted to have broad extraterritorial application.

The DTSA's ex parte civil seizure provision was also seen as a tool for fighting international misappropriation, and was "expected to be used in instances in which a defendant is seeking to flee the country."²⁹ This provision goes beyond traditional trade secrets law, providing for seizure by a Federal law enforcement officer, who may be aided by a private technical expert,³⁰ after a true ex parte hearing.

The seizure provision contains many requirements and is to be used only in extraordinary circumstances.³¹ That has been true to date: our review of electronic databases reveals only ten reported orders granting ex parte seizures, out of 21 total applications. As a general matter, courts have followed the DTSA's guidance and refrained from seizure orders if a less intrusive TRO or injunction would be sufficient.³² Still, it remains a powerful weapon under the right circumstances. Courts that grant seizure orders often reference concrete allegations establishing that the defendant would not follow a court order, such as past dishonesty or a defendant's technical proficiency and ability to conceal evidence.³³

At five the DTSA is still finding its legs, but it is already a frequently used and effective tool for trade secret enforcement, particularly against misappropriation with an international scope.

Footnotes

1. 162 Cong. Rec. S-1631, H-2046.

2. S. Rept. 114-220; H. Rept. 114-529 (2016).

3. 18 U.S.C. § 1836(b)(1).

4. Lex Machina Trade Secret Litigation Report (April 2020) at 3. According to our own analysis of more recent Lex Machina data, federal trade secret filings have remained on a similar pace, with 1,369 in 2020 and 320 in the first quarter of 2021.

5. Courthouse News data shows that 1,161 trade secret cases were filed in state court in 2015, compared to 1,188 in 2016, 1,195 in 2017, 1,252 in 2018, and 1,103 in 2019. Courthouse News currently tracks data from over 2,875 state courts.

6. 18 U.S.C. § 1838.

7. S. Rept. 114-220 (2016).

8. ExamWorks, LLC v. Baldini, 835 F. App'x 251, 252 (9th Cir. 2020).

9. InteliClear, LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 657 (9th Cir. 2020).

10. See, e.g., Deerpoint Grp., Inc. v. Agrigenix, LLC, 393 F. Supp. 3d 968, 980 (E.D. Cal. 2019); JJ Plank Co., LLC v. Bowman, 2018 WL 4291751, at *8 (W.D. La. Sept. 7, 2018); Puroon, Inc. v. Midwest Photographic Res. Ctr., Inc., 2018 WL 5776334, at *5 (N.D. Ill. Nov. 2, 2018); Medidata Sols., Inc., v. Veeva Sys. Inc., 2018 WL 6173349, at *3 (S.D.N.Y. Nov. 26, 2018); ActivEngage, Inc. v. Smith, 2019 WL 5722049, at *3 (M.D. Fla. Nov. 5, 2019).

11. Kuryakyn Holdings, LLC v. Ciro, LLC, 242 F. Supp. 3d 789, 797-98 (W.D. Wis. 2017). See also In re Patriot Nat'l Inc., 592 B.R. 560, 577 (Bankr. D. Del. 2018).

12. 592 B.R. at 577.

13. 18 USC § 1836(b)(3)(A)(i)(I)-(II).

14. See, e.g., EL T Sight, Inc. v. Eyelight, Inc., 2020 WL 7862134, at *16 (C.D. Cal. Aug. 28, 2020) (collecting cases).

15. PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995).

16. See, e.g., Inventus Power, Inc. v. Shenzhen Ace Battery Co., 2020 WL 3960451, at *11 (N.D. Ill. July 13, 2020) (and cases cited therein).

17. See, e.g., Sunbelt Rentals, Inc. v. Love, 2021 WL 82370, at *68 (D.N.J. Jan. 11, 2021), appeal pending, No. 21-1233 (3rd Cir. filed Feb. 8, 2021).

18. See, e.g., AWP, Inc. v. Henry, 2020 WL 6876299, at **4-5 (N.D. Ga Oct. 28, 2020).

19. See A&P Tech., Inc. v. Lariviere, 2017 WL 6606961, at *9 (S.D. Ohio Dec. 27, 2017) (collecting cases).

20. Alta Devices, Inc. v. LG Elecs., Inc., 2019 WL 176261, at *1 (N.D. Cal. Jan. 10, 2019) (applying Cal. Code Civ. Proc. § 2019.210).

21. See A&P, 2017 WL 660691, at *9 (noting "divergent rulings from various federal courts").

22. 436 F. Supp. 3d 1150, 1160 (N.D. Ill. 2020).

23. See, e.g., Herrmann Intl., Inc. v. Herrmann Intl. Europe, 2021 WL 861712, at *16 (W.D.N.C. Mar. 8, 2021); Medcenter Holdings Inc. v. WebMD Health Corp., 2021 WL 1178129, at *6 (S.D.N.Y. Mar. 29, 2021); Syntel Sterling Best Shores Mauritius Ltd., v. Trizetto Group, Inc., 2021 WL 1553926, at *14 (S.D.N.Y. Apr. 20, 2021).

24. This provision was originally part of the criminal Economic Espionage Act, which the DTSA amended to add a civil cause of action.

25. Medcenter, 2021 WL 1178129, at *6.

26. MedImpact Healthcare Sys., Inc. v. IQVIA Inc., 2020 WL 5064253, at *15 (S.D. Cal. Aug. 27, 2020).

27. vPersonalize Inc. v. Magnetize Consultants Ltd., 437 F. Supp. 3d 860, 878 (W.D. Wash. 2020) (DTSA "does not require the defendant to have committed such act").

28. ProV Intl. Inc. v. Lucca, 2019 WL 5578880, at *3 (M.D. Fla. Oct. 29, 2019) (attendance at trade show and submission of resignation in U.S. did not satisfy statute).

29. S. Rept. 114-220.

30. 18 U.S.C. § 1836(b)(2)(E).

31. 18 U.S.C. § 1836(b)(2).

32. 18 U.S.C. § 1836(b)(2)(A)(ii)(I). See, e.g., OOO Brunswick Rail Mgt. v. Sultanov, 2017 WL 67119, at *2 (N.D. Cal. Jan. 6, 2017) (issuing preservation order and TRO rather than DTSA seizure).

33. See Mission Capital Advisors LLC v. Romaka, 2016 WL 11517104, at *2 (S.D.N.Y. July 29, 2016) (defendant falsely represented he removed trade secrets from computer); Solar Connect, LLC v. Endicott, 2018 WL 2386066, at *2 (D. Utah Apr. 6, 2018) (defendants lied and hid information; also had "high level of computer and technical proficiency"); Axis Steel Detailing, Inc. v. Prilex Detailing LLC, 2017 WL 8947964, at *2 (D. Utah June 29, 2017) (similar).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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