The First Year of the Defend Trade Secrets Act

July 11, 2017Articles The Legal Intelligencer

On May 11, 2016, the Defend Trade Secrets Act, 18 U.S.C. Section 1836, et. seq., was signed into law. At the time, the DTSA was hailed for ­providing federal protection against the growing problem of corporate espionage. For the most part, the first year of the DTSA unfolded as expected. Federal trade secret filings increased and many litigants attempted to utilize the unique remedies offered by the DTSA. However, the relative infancy of the DTSA leaves many issues open to interpretation. Below, we briefly review some of the major developments during the first year of the DTSA.

Ex Parte Seizures

The DTSA provides plaintiffs with the unprecedented ability to seek an ex parte seizure of misappropriated materials. If granted, this remedy authorizes federal law enforcement agents to enter one's premises and seize property. Many were anxious to see how such extreme relief would affect trade secret cases. One year in, the effect remains unclear.

To obtain an ex parte seizure, a plaintiff must satisfy a rigorous eight-factor test. The most demanding of these factors r­equires a plaintiff to demonstrate that other equitable relief would be insufficient. In practical terms, a plaintiff must show that an ­injunction (or TRO) prohibiting further dissemination or destruction of evidence would not do the job. Unsurprisingly, this exacting standard has proven difficult to meet.

In one of the few instances where an ex parte seizure was granted, the plaintiff demonstrated that the defendant actively avoided being served with a prior TRO, see Mission Capital Advisors v. Romaka, No. 16-05787 (S.D.N.Y. July 29, 2016). Because the plaintiff actually tried and failed to protect itself through less severe equitable relief, the court granted an ex parte seizure.

The court's reasoning in Mission Capital echoes that of most courts addressing motions for ex parte seizures: look to ­remedy the situation through an injunction, and only turn to a seizure when all else fails.

Scope

Perhaps the most widely addressed issue has been whether the DTSA applies to ­conduct that occurred before its effective date of May 11, 2016. By its terms, the DTSA applies to misappropriation where "any act occurs on or after the date of the enactment of the DTSA." A majority of courts have relied upon this provision to find that the DTSA reaches ­"continuing misappropriation." In other words, the DTSA reaches misappropriations that began prior to the DTSA effective date if there are continuing misappropriation acts after the effective date.

Generally, this issue arose in situations where an employee left for a competitor prior to May 11, 2016, but remained in ­possession of materials after the DTSA's enactment. For example, in Brand Energy & Infrastructure Services v. Irex Contracting Group, No. 16-2499, (E.D. Pa. March 24), the court held that the DTSA applied to employees who left the plaintiff's employ in 2014 because they continued to "use" the stolen ­materials after the effective date.

Other courts have used the effective date to limit the ­actionable conduct at issue. For example, in Adams Arms v. Unified Weapons Systems, No. 16-01503, (M.D. Fla. Sept. 26, 2016), the plaintiff asserted misappropriation claims based on the distinct acts of: acquiring trade secrets, and ­disclosing trade secrets. The court found the claims based on acquisition barred because those acts occurred prior to the DTSA's effective date. However, the claims grounded in disclosure could proceed because they arose afterwards.

In short, showing at least one act of misappropriation occurred after May 11, 2016, will allow at least partial recovery under the DTSA.

Going Forward: Criminal Considerations

The DTSA was enacted as an amendment to the Economic Espionage Act (EEA), 18 U.S.C. Section 1831, et. seq. Separate from the provision for civil actions, the EEA also criminalizes, inter alia, the "theft of trade secrets for pecuniary gain," 18 U.S.C. Section 1832. Similar to civil cases, both the individual that actively engages in misappropriation and the entity that ultimately receives the misappropriated material can be subject to criminal penalties. Historically, EEA prosecutions arose in cases involving foreign states or national security considerations. However, over the past year, electronic crime received extensive media coverage. Many commentators predict an increased emphasis on trade secret crime will 
follow.

The criminal implications of trade ­secret misappropriation were recently highlighted in the pending civil dispute between Waymo (a Google affiliate) and Uber. By way of background, Waymo and Uber are both seeking to develop self-driving car technology. In 2015, a senior member of Waymo's self-driving car project resigned and ultimately ended up at Uber. Such a fact pattern is typical in civil trade secret cases, and it was not surprising when Waymo sued Uber for trade secret misappropriation in the Northern District of California. What was unusual, however, was when the presiding judge asked the Department of Justice to investigate Uber for violations of the EEA. The judge's request was triggered by evidence that Uber knew, or should have known, that the engineer possessed ­thousands of documents containing Waymo's intellectual property.

While the outcome of the investigation remains to be seen, the very fact that the presiding judge took such action reinforces the notion that trade secret misappropriation will face heightened criminal ­scrutiny going forward. Now, more than ever, ­in-house counsel must institute safeguards to prevent incoming employees from bringing trade secret materials to their new jobs.

Reprinted with permission from the July 11 issue of The Legal Intelligencer. (c) 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.