United States: Lessons Learned From The First Year Of The Defend Trade Secrets Act

n May 11, 2016, President Obama signed into law the landmark Defend Trade Secrets Act (DTSA), creating the first federal civil misappropriation of trade secrets claim. 18 U.S.C. §1836. Since DTSA's passage, plaintiffs have enthusiastically embraced the federal forum with over 400 DTSA cases filed in district courts (including complaints amended to add a DTSA claim), and over 15% filed in California district courts.

As we come upon the first year of DTSA, some trends have emerged: (1) DTSA seizure requests are seldom sought or granted; (2) it remains unclear whether California trade secrets plaintiffs are required to identify trade secrets with reasonable particularity before commencing discovery, consistent with Code of Civil Procedure §2019.210, which applies to state law claims; and (3) federal courts may not yet be better for plaintiffs.

Seizure Applications—Rarely Requested or Granted

One of the most striking differences between the California Uniform Trade Secrets Act (CUTSA) and DTSA is DTSA's authorization of an ex parte application to seize the misappropriated trade secrets. 18 U.S.C. §1836(b)(2). Seizure is only permitted under "extraordinary circumstances," where relief under Rule 65 is insufficient, and when "necessary to prevent the propagation or dissemination of the trade secret." Although this was a hotly debated provision during Congressional deliberations, that might have been much ado about nothing.

There have been less than 10 seizure requests and most have been denied because the facts presented did not show the requisite extraordinary circumstances warranting a seizure. See, e.g., Jones Printing v. Adams Lithographing Co., No. 1:16- cv-442 (E.D. Tenn. Nov. 3, 2016). The one known order granting seizure was because the defendant failed to appear in court for a show cause hearing and was likely evading personal service; further, the order was limited to the preservation of and deletion from defendant's computer a contact list. See Mission Capital Advisors v. Romaka, No. 1:16-cv-05878-LLS (S.D.N.Y. Jul. 29, 2016). While DTSA's legislative history offered examples like a defendant fleeing the country, this set of facts has yet to be presented in a published order to a Court by a plaintiff seeking seizure.

Avoiding §2019.210

The steady stream of DTSA complaints in California federal courts suggests that plaintiffs currently prefer federal court. One reason may be because DTSA does not contain a provision analogous to §2019.210, requiring plaintiffs to identify the trade secrets with reasonable particularity before discovery can commence. Some California federal courts overseeing state law misappropriation claims have required plaintiffs to comply with §2019.210. See, e.g., Loop AI Labs v. Gatti, 2015 WL 9269758, at *3 (N.D. Cal. Dec. 21, 2015). Trade secrets disclosures can present major roadblocks for plaintiffs because there are often disputes regarding the sufficiency of the disclosure, which causes increased costs and delay.

To date, there has been no opinion from a California federal court requiring a trade secrets disclosure under DTSA prior to the commencement of discovery. However, plaintiffs alleging a DTSA and CUTSA claim (often seen in early DTSA litigation) should be prepared to come forward with a disclosure early in litigation. Moreover, DTSA plaintiffs should assume that defendants will seek a trade secrets disclosure similar to §2019.210. In addition, the fight about sufficient particularity may shift from the discovery phase to the pleading phase, where a defendant may argue from the get-go that the plaintiff has not described the trade secrets with sufficient particularity under the Iqbal/Twombly pleading requirements. See Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (facts in complaint must state a claim plausible on its face).

To File or Not to File in Federal Court?

Now, under DTSA, plaintiffs have a choice of state or federal court. But whether federal courts provide a superior forum is not always clear depending on the plaintiff's goals and the comparable state court venue.

As discussed, DTSA plaintiffs may be able to avoid trade secrets disclosure requirements and potential discovery delays. However, plaintiffs expecting the speed of TROs and preliminary injunctions often seen in California state courts might be disappointed with the pace of federal courts, depending on the judge. While state courts can hear and grant ex parte applications for TROs within 24-hours' notice, in some early DTSA litigation, federal courts have taken days, even weeks, to issue an order. Federal courts may instead opt for an early trial date to move the case along quickly. In addition, it will not be uncommon for a preliminary injunction hearing to occur months after the filing of the complaint, depending on what expedited discovery is required.

Another issue seen in the early going is that some federal courts may need more background on trade secrets law. While state court judges—particularly in Silicon Valley and San Francisco—may regularly preside over trade secret cases, the federal judiciary may not have the same breadth of experience. District court judges likely will be more familiar with patent cases and may try to draw upon those same principles in trade secret cases. Counsel should keep in mind that for the newer members of the federal bench, this may be one of the first trade secrets cases the judge has seen. Parties may need to provide more briefing on trade secrets law than they normally would have in state court. Thus, while plaintiffs are opting for federal courts more, it is not a foregone conclusion that federal court is definitively better.

Future Issues TBD

The passage of DTSA and its early litigation reflect an exciting new chapter in trade secrets law. As we enter year two, it will be interesting to see what trends continue or merge. In particular, it is yet to be determined whether a court will grant a sweeping seizure order, the extraterritorial reach of DTSA, or whether DTSA will indeed harmonize trade secrets law, as was Congress' intention, or will conflicts emerge with CUTSA.

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