The Federal Defend Trade Secrets Act

Keeping Secrets a Secret

A secret’s worth depends on the people from whom it must be kept.

— Carlos Ruiz Zafón, The Shadow of the Wind (2001)

Anthony Levandowski was the project manager for the development of self-driving automobiles for Waymo, a Google subsidiary. In December 2015 and unbeknownst to Waymo, Levandowski allegedly used his company computer to access and download more than 14,000 “highly confidential and proprietary [computer] files” relating to the project.[1] After completing the download,  Levandowski purportedly installed a new operating system on his company computer, which effectively reformatted the machine in an effort to “erase any forensic fingerprints that would show what he did with Waymo’s valuable [data].”[2] One month later, in January 2016, Levandowski left Waymo, allegedly telling his colleagues of “plans to set up a new, self-driving vehicle company.”[3]

In May 2016, Levandowski launched his new companies, Ottomotto LLC and Otto Trucking LLC. Three months later, Uber — a competitor of Waymo, which also has been working on the development of a self-driving car — purchased both companies for a reported $680 million.[4] Subsequent to that purchase, a third-party tech supplier transmitted an email to Ottomotto and Uber that allegedly contained confidential and proprietary design information belonging to Waymo.[5] Fortuitously, Waymo learned of this email because a Waymo employee inadvertently was copied on it at the time of transmission.[6] Not surprisingly, Waymo launched an immediate investigation, and — in 2017 — filed a federal lawsuit against Levandowski’s companies and Uber for theft of confidential and proprietary trade secrets and patent infringement.[7]

While the Waymo litigation is in its early stages, the allegations, if true, highlight the high value of confidential trade secrets, and of the ever-growing risks of potential theft of such secrets in the digital age.

The Legal Landscape Has Changed for Trade Secrets

The recognition and protection of trade secrets potentially reaches the broadest spectrum of commercial endeavors. Yet, at the same time, it has been one of the most vaguely defined, amorphous areas of intellectual property law. Generally speaking, a trade secret can be any technical, nontechnical, or financial data, a formula, pattern, compilation, program, device, method, technique, process or plan that

  • derives independent economic value from not being generally known,
  • would provide economic value to other from its disclosure, and
  • has been subject to reasonable efforts to maintain its secrecy.

Oft-cited examples of trade secrets include the 130-year-old secret formula for Coca-Cola and the “secret blend of 11 herbs and spices” of the Colonel’s Original Recipe® for Kentucky Fried Chicken. However, the category is broader than formulas and recipes. Under proper circumstances, trade secrets can include proprietary manufacturing techniques/processes, specialized training methods, profit margins and customer lists. As long as the information at issue is not known to the general public or cannot be learned readily by the general public (e.g., the “11 herbs and spices” may be in common culinary use, while their specific proportions in the KFC recipe are not known), such may qualify as a trade secret.

Unlike its intellectual property cousins (patents, copyrights and trademarks), a trade secret requires no registration with the federal or state government as a prerequisite for protection. To the contrary, trade secrets are protected because they are not publicly disclosed. In this regard, there are trade-offs between obtaining, for example, a patent versus maintaining an innovation as a trade secret. Patenting generally requires public disclosure of the invention through the application process.[8] If the invention is sufficiently novel and useful, the owner’s application is accepted and a patent is awarded for a finite term — 20 years from the date of application for a utility patent;14 years from the date of application for a design patent. If, however, the application is denied and no patent is awarded, the proprietary information contained in the application falls into the public domain. If the information was secret at the time of the application, it certainly is not by the end of the patent process. Thus, the application process itself contains a level of risk.

Moreover, the patent application process usually takes many years, while technological innovations seemingly evolve at a geometric rate.[9] Thus, by the time a patent issues, it is possible that the claimed invention itself may be obsolete.[10]

In contrast, an innovation maintained as a trade secret potentially can last in perpetuity — that is, as long as the innovation remains a secret. Therein lies another trade-off: a patented invention is protected for a finite (but guaranteed) period of time, while a trade secret potentially may last indefinitely. However, if the trade secret at issue becomes public — either through accidental disclosure by the owner, independent discovery by a competitor or reverse engineering — legal protection ceases immediately.

While protections afforded to patents, copyrights and trademarks largely have been defined by federal statute, the security of trade secrets has been relegated, for years, to state statutory or common law. Since its publication in 1979 and its amendment in 1985, primary protections have been found in the Uniform Trade Secrets Act (UTSA), as adopted by 48 states (all but New York and Massachusetts).[11] But even among those 48 states, variations and nuances in the UTSA are common. Moreover, unless diversity jurisdiction was implicated under 28 U.S.C. § 1332, disputes over the theft and protection of trade secrets were resolved by state courts.

The legal landscape changed in May 2016, however, with the enactment of the Defend Trade Secrets Act (DTSA). Recognizing that “[t]rade secrets of American companies are increasingly at risk for misappropriation by thieves looking for a quick payday or to replicate the market-leading innovations developed by trade secret owners,”[12] Congress — for the first time — provided a private federal cause of action for trade secret misappropriation.[13] As reported by the House Committee on the Judiciary, trade secrets “[o]ften [are] developed at great cost and through years of research and development … [and] constitute some of any company’s most valuable property.”[14] Because trade secrets “are an integral part of a company’s competitive advantage, and with the increased digitization of critical data and increased global trade, this information is highly susceptible to theft.”[15] Accordingly, through the Defend Trade Secrets Act, Congress sought to “provide a single, national standard for trade secret misappropriation with clear rules and predictability for everyone involved.”[16]

Notable Components

A. Definitions

1. ‘Trade Secret’
While Congress intended “to bring the Federal definition of a trade secret in conformity with the definition used in the Uniform Trade Secrets Act,”[17] the DTSA definition actually is more comprehensive than its state counterpart.[18] This broader definition arguably serves to expand the protections to a wider range of proprietary information.

However, though the scope of the DTSA may be wider, the standard to establish the existence of trade secret has not been relaxed. “[V]ague, generalized descriptions of … purported trade secrets, without demonstrating that any specific piece of information meets the statutory definition,” are unavailing under the DTSA.[19] “‘[A] plaintiff must do more than just identify a kind of technology and then invite the court to hunt through the details in search of items meeting the statutory definition.’”[20] For example, in Free Country Ltd. v. Drennan,[21] the district court recognized that “client list[s]” and “pricing information” could be treated as trade secrets under certain conditions.[22] Yet, such information must be “‘developed … through substantial effort and kept in confidence,’” and — in the case of pricing information — must “use some type of proprietary formula that gives it a unique advantage.”[23] In contrast, when the information at issue is “readily accessible” or “publicly available,” no protection is afforded.[24]

Similarly, a company must demonstrate that it has taken appropriate measures to preserve the secrecy of what it claims is proprietary information. Indeed, a company should be prepared to state in its complaint the steps it has taken to protect against disclosure of such information to the general public. In Raben Tire Co. LLC v. McFarland,[25] the court noted that a plaintiff always “bears the burden of demonstrating that it took reasonable steps to maintain the secrecy of the protected information” and granted defendant’s Rule 12(b)(6) motion to dismiss because the “complaint [was] entirely devoid of any allegations of how it protected the information in question from dissemination.”[26] The court specifically held that, because “the complaint contains no factual allegations from which to plausibly infer that [plaintiff] took any steps to maintain its secrecy … the omission is fatal to its claim for misappropriation of trade secrets under the DTSA.”[27]

Specificity of pleading also comes into play with regard to invoking the jurisdiction of the district court. While the DTSA defines “trade secret” expansively, it also contains a separate jurisdictional requirement, as explained by 18 U.S.C. § 1836(b)(1): the trade secret at issue must be “related to a product or service used in, or intended for use in, interstate or foreign commerce.” Thus, a company may satisfy the DTSA’s definition of “trade secret,” but nevertheless may find the doors of the federal court closed to it by failing to allege use of the trade secret in interstate or foreign commerce.[28]

2. ‘Misappropriation’ and ‘Improper Means’
In contrast to the definition of “trade secret,” the federal definitions of “misappropriation”[29] and “improper means”[30] are virtually verbatim of the UTSA. In this respect, “misappropriation” includes not only improper “acquisition” of a trade secret but also improper “disclosure or use” of a trade secret.[31] Thus, two separate courses of conduct — with two different theories of liability — may be actionable under the statute, depending upon the facts at issue.[32] This dual nature of misappropriation is particularly relevant when the alleged trade secrets are acquired before the effective date of the statute (May 11, 2016) but are disclosed or used after the effective date. In Adams Arms LLC v. Unified Weapons Systems Inc.,[33] the court examined the impact of such post-enactment conduct. While the alleged theft of plaintiff’s trade secrets occurred well-prior to the effective date the DTSA, the alleged disclosure of those trade secrets occurred post-enactment.[34] Applying the statutory definition, the court found that plaintiff “sufficiently allege[d] a prohibited ‘act’ occurring after May 11, 2016,” and limited plaintiff’s claims “to a disclosure theory” since the plaintiff “[could not] proceed under an acquisition theory.”[35]

B. Remedies

1. Ex Parte Seizure
According to the House Report, the remedies of the DTSA are “narrowly drawn” to minimize “disruption of legitimate businesses” while at the same time providing trade secret owners with “the tools they need to effectively protect their intellectual property” from theft and improper use.[36]

Nevertheless, the DTSA offers one remedy that is unavailable under the UTSA: ex parte application and seizure of “property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”[37] The remedy is applicable only in “extraordinary circumstances”[38] and a court may not issue such a seizure order unless, based upon “specific” factual allegations, it finds each of the following eight prerequisites:

  • that an injunction issued under Rule 65, Fed. R. Civ. P., or another form of equitable relief “would be inadequate” to protect the movant’s immediate interests “because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order”;
  • that “immediate and irreparable injury will occur” absent the issuance of a seizure order;
  • that “the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom [seizure is sought] … and substantially outweighs the harm to any third parties”;
  • that the applicant is likely to succeed in showing that (a) the information is a trade secret and (b) the person against whom the seizure is sought (1) misappropriated the trade secret or (2) conspired to use improper means to misappropriate the trade secret at issue;
  • that the person against whom the seizure order is sought has actual possession of both (a) the trade secret and (b) any property to be seized;
  • that the application described “with reasonable particularity” the matter to be seized, and “to the extent reasonable under the circumstances” the location of the matter to be seized;
  • that the person against whom the seizure order is sought (or persons acting in concert with such person) “would destroy, move, hide, or otherwise make such matter inaccessible to the court” if notice of the application was given; and
  • that the applicant “has not publicized the requested seizure.”[39]

Note that, while the ex parte applicant must demonstrate a likelihood of success in proving that the information at issue is a “trade secret,”[40] the statute does not limit an ex parte seizure order to the trade secret itself. Rather, a court may authorize the seizure of “property” in order to prevent the “propagation or dissemination of the trade secret.”[41]

This point is illustrated in Magnesita Refractories Company v. Mishra,[42] in which the court ordered the ex parte seizure of the defendant’s personal laptop, before any trade secrets actually had been disclosed.

In Magnesita, the plaintiff presented the affidavit of its vice president of sales & marketing, which described the discovery of a number of suspicious emails that had been sent to and from the account of the defendant (who was another vice president in the company).[43] As set forth in the affidavit, the emails indicated that the defendant had planned a clandestine meeting with a third-party supplier of Magnesita for the purpose of discussing other business ventures independent of, and in competition with, his employer.[44] The emails described this as a “kick-off meeting” for the discussion of a “business plan” for a new company to be formed with the supplier, presentation of “market intelligence,” alignment of a “business model,” and a discussion of “structure” for the venture.[45]

The court concluded that “Magnesita reasonably believed that it potentially had a rogue employee who was scheming to harm its business interest.”[46] Based on the evidence, the court further concluded that the defendant was

in possession of Magnesita’s confidential trade secrets, was in contact with a former Magnesita employee and Wang Yong, a CEO of a company in a similar business to Magnesita, and it appeared that the meetings had been arranged and were being conducted to discuss the possibility of a new venture between the three gentlemen in violation of [the defendant’s] employment agreement. As I stated on the record, “[t]hose e-mails strike me as strong evidence of a likelihood that trade secrets are going to be exchanged and used by the defendant and disseminated to potentially this new venture that is ostensibly being formed.”[47]

The court also found persuasive a certification from Magnesita’s own counsel, which expressed the belief that the defendant would “take steps to delete or modify evidence contained on [his] personal laptop … [and that] [d]estruction of this key evidence will irreparably harm Plaintiff.”[48] Accordingly, the court issued a very limited seizure order to preserve the evidence.[49]

2. Injunction
The DTSA authorizes a court to grant an injunction “to prevent any actual or threatened misappropriation” on whatever terms the court deems “reasonable.”[50] However, this discretion is subject to two limitations: (1) the injunction may not “prevent a person from entering into an employment relationship” and (2) the injunction may not “conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”[51] As explained in the House Report, these limitations were included to protect employee mobility, as some have expressed concern that the injunctive relief authorized under the bill could override State-law limitations that safeguard employee mobility and thus could be a substantial departure from existing law in those states.[52]

a. Prevention of a Person from Entering into an Employment Relationship. The first limitation highlights the need for employers to consider the necessity of separate non-compete provisions with their key employees, and not simply rely on employer-employee confidentiality agreements. While confidentiality agreements prohibit the disclosure of trade secrets, they typically do not function — on their face — to prevent an employee from leaving one employer and working for a competitor. This dichotomy has led to the development of the “inevitable disclosure doctrine,” which simply states that certain employees can be prohibited from moving to a competitor, because they inevitably will disclose trade secrets of the original employer in order to perform their new job effectively. Depending on the jurisdiction, the doctrine can be invoked to prevent not only the actual misappropriation of trade secrets but the mere threat that it will occur.[53]

The doctrine was addressed most prominently by the Seventh Circuit Court of Appeals in PepsiCo Inc. v. Redmond.[54] In PepsiCo, plaintiff brought suit against a high-level former management employee who had left Pepsi to work for Quaker, a direct competitor.[55] The former manager had signed a confidentiality agreement, but not a non-competition agreement.[56] Notwithstanding the lack of a non-compete agreement, Pepsi argued that the defendant should be enjoined from working for Quaker, solely because disclosure of its trade secrets would be inevitable — i.e., that defendant “cannot help but rely on [Pepsi’s] trade secrets as he helps plot Gatorade and Snapple’s new course, and that these secrets will enable Quaker to achieve a substantial advantage by knowing exactly how [Pepsi] will price, distribute, and market its sports drinks and new age drinks and being able to respond strategically.”[57] Indeed, Pepsi did not contend that the defendant or Quaker actually had stolen any trade secrets.[58]

The district court granted an injunction against the former manager, and enjoined him from working for Quaker for a period of five months.[59] The Seventh Circuit affirmed, holding that “a plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.”[60]

The “inevitable disclosure doctrine,” however, has been subject to widely different interpretations, with some jurisdictions rejecting it altogether.[61] So, in certain circumstances, a separate non-compete agreement — with reasonable limitations in both time and geography, and with adequate consideration to support the covenant not to compete — may be beneficial. Note, however, that even non-compete provisions are subject to varied levels of scrutiny and enforcement, depending upon the laws of the jurisdiction in question.

Note also that the DTSA’s first injunction limitation also contains a limitation of its own: while an injunction may not “prevent a person from entering into an employment relationship,” the statute suggests that an injunction may place “conditions … on such employment” so long as they are “based on evidence of threatened misappropriation and not merely on the information the person knows.”[62] So, while a court may not completely prevent a person from going to work for a competitor, it may impose “conditions” on that employment under appropriate circumstances that are supported by specific evidence.

b. No Other Conflicts with Applicable State Law. The second limitation — i.e., that an injunction may not “otherwise conflict with applicable State law” — is more nuanced. While the provision is consistent with the notion that the DTSA does not preempt existing state laws, it appears to be at odds with its overall purpose to “provide a single, national standard” for trade secret protection.[63] Indeed, this limitation seemingly requires a district court to apply a quasi conflict-of-laws analysis to a federal remedy. In fact, the only court to date to construe this provision did precisely that.

In Engility Corp. v. Daniels,[64] the district court addressed the claim of a military defense contractor that its technical program manager (whom the plaintiff described as “the face” of the company) had left its employ to start his own company, with the intention of competing against the plaintiff for future military contracts.[65] Plaintiff presented evidence that its former employee had signed a detailed confidentiality agreement regarding various categories of proprietary information, and that he may have misappropriated such trade secrets on a flash drive.[66] However, while plaintiff established the existence of a confidentiality agreement, no non-compete agreement apparently existed between the employer and the employee.[67]

In addressing the state-law limitation of the injunction provision, the court opined that “one may not obtain by way of an injunction what one could not obtain in a contract, and, as noted, Colorado has statutory restrictions regarding the scope of contractual noncompete agreements.”[68] Specifically, by statute, Colorado declared that “[a]ny covenant not to compete which restricts the right of any person to receive compensation for performance of skilled or unskilled labor for any employer shall be void.”[69]

While the court acknowledged that the statute did not directly apply to this case (because no non-compete agreement existed between the parties), the court found the provision nevertheless relevant because plaintiff sought an injunction that prevented the defendants from accepting business from the U.S. Northern Command (i.e., plaintiff’s customer).[70] While not a restraint of employment, such an injunction technically is a “restraint on the practice of a lawful … business,”[71] which could not conflict with state law.

Ultimately, the court granted the requested injunction, because the state statute that prohibits non-compete agreements also contained an exception “for the protection of trade secrets.”[72]

3. Damages
a. Compensatory Damages. Consistent with the UTSA, the federal DTSA authorizes awards for “actual loss caused by the misappropriation” (under either appropriation theory) of the trade secret, “and … for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss.”[73] Alternatively, the DTSA permits the recovery of a “reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret.”[74]

Citing state court precedent, the House Report advises that the “reasonable royalty” alternative is a “remedy of last resort”[75] and that Congress does not intend to “encourage the use of reasonable royalties to resolve trade secret misappropriation.”[76] Congress, however, specifically made the remedy available for “exceptional cases that render an injunction inequitable.”[77] In those instances, the court not only must determine a reasonable royalty figure but also must extrapolate the likely duration of the life of the trade secret — i.e., it can award a royalty “for not longer than then period of time for which such use could have been prohibited.”[78]

To date, no cases have engaged in that level of crystal-ball gazing. However, it is reasonable to expect that such determinations would be based upon a number of factors, including (a) the age of the trade secret, (b) the steps that the owner has taken to protect it from disclosure to the general public, (c) the complexity of the trade secret, and (d) the pace of innovation in the field or area that the trade secret is used. Given that the life-span of a trade secret can end overnight or last many decades, this issue may be a fertile field for expert testimony.

b. Exemplary Damages and Attorneys’ Fees. If the trade secret at issue is “willfully and maliciously misappropriated,” the DTSA permits the recovery of “exemplary damages in an amount not more than 2 times the amount of damages awarded” to compensate the plaintiff.[79] Attorneys’ fees also are available if the misappropriation was both willful “and” malicious.[80]

However, none of these enhanced remedies are available to an employer against an employee, if the employer fails to notify its employees of the statutory immunity provisions, discussed below.[81]

C. Safe Haven Immunity

The DTSA grants broad immunity from criminal and civil liability if an individual discloses a trade secret

  • in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and [such disclosure is made] solely for the purpose of reporting or investigating a suspected violation of law”;[82]
  • “in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal”;[83] or
  • in the context of an antiretaliation lawsuit filed against the employer, to such individual’s own attorney and/or to the court in an under-seal filing, and does not otherwise disclose the trade secret except pursuant to a court order.[84]

Note that, notwithstanding Congressional statements to the contrary,[85] the DTSA does supplant state law in at least one respect. The act specifically grants criminal and civil immunity from suit “under any Federal or State trade secret law,”[86] if the statutory prerequisites are met. Thus, even if a state statute does not have an immunity provision of its own, such a provision now is engrafted into state law by operation of this section of the DTSA.

As stated above, the act further requires employers to provide notice of the immunity “in any contract or agreement with an employee[87] that governs the use of a trade secret or other confidential information.”[88] This notification requirement applies to all such contracts entered into after May 11, 2016, and to any amendments to pre-enactment contracts.[89] An employer also may comply with this notice requirement by “provid[ing] a cross-reference to a policy document provided to the employee that sets for the employer’s reporting policy for suspected violation of law.”[90]

Of the three circumstances in which immunity applies, the “whistleblower” provision is perhaps the most complicated. As a preliminary matter, the provision is not intended to “immunize[] acts that are otherwise prohibited by law, such as unlawful access of material by unauthorized means.”[91] Clearly, on this issue, Congress was concerned about avoiding the immunization of computer hacking by outside third parties. But “unlawful access of material by unauthorized means” also can apply to employees or other insiders of a company. Indeed, in Brown Jordan Int’l Inc. v. Carmicle,[92] an employer successfully sued the president of one of its subsidiaries for violating the federal Computer Fraud and Abuse Act[93] and the Federal Stored Communications Act,[94] by accessing email accounts of other employees without authorization. Thus, while this “whistleblower” provision may be intended to protect employees who disclose trade secrets “in confidence” for the purpose of reporting potentially illegal activity, it may not be available to employees who come by the trade secret via “unauthorized means.”

Further, the “whistleblower” provision has a mental component: the confidential disclosure of the trade secret must be made “solely” for the purpose of reporting or investigating a suspected violation of law. Presumably, under the strict wording of the act, immunity would not be afforded to an employee whose confidential disclosure is motivated not only to report a possible illegality, but also because the employee, for example, was passed over for a promotion.

Thus, this presents a fact issue, which — in certain circumstances — may require formal discovery before immunity is afforded to the disclosing party.

This aspect of the immunity provision recently was considered in Unum Group v. Timothy Loftus,[95] in which the employer brought suit against a former management employee for “remov[ing] numerous company documents from Unum’s facility without authorization, and refus[ing] to return them.”[96] Specifically, plaintiff — which provides “financial protection benefits, including disability benefits, life insurance, and accident coverage”[97] — observed the defendant on surveillance video leaving the plaintiff’s facility on two separate occasions, after hours, with boxes and bags of company documents and a company laptop.[98] When the employee refused to return the materials, plaintiff filed suit and — among other things — sought an injunction prohibiting defendant from copying and withholding the materials.[99] The employee moved to dismiss the case pursuant to the whistleblower provision of the DTSA, claiming that “he is entitled to immunity …because he handed Unum’s document over to his attorney to pursue legal action against Unum for alleged unlawful activities.”[100]

The district court, however, was reluctant simply to take Loftus’s word for it. While recognizing “the substantial public interest in facilitating whistleblower actions,” the court noted that “that no whistleblower suit has been filed.”[101] Further, Unum does not know what Loftus took or what he is going to do with it. Loftus’s [sic] self-help discovery and threat of potential action in the future are not mitigated by the existence of an actual lawsuit.[102]

In addition, the court noted that [t]here has been no discovery to determine the significance of the documents taken or their contents. … Further, it is not ascertainable from the complaint whether Loftus turned over all of Unum’s documents to his attorney, which documents he took and what information they contained, or whether he used, is using, or plans to use, those documents for any purpose other than investigating a potential violation of law. Taking all facts in the complaint as true, and making all reasonable inferences in favor of Unum, the court finds the complaint states a plausible cause of action.[103]

Accordingly, the court denied defendant’s motion to dismiss, and granted plaintiff’s motion for a preliminary injunction.[104]

Conclusion

The DTSA was enacted to enable “[v]ictims [of trade secret misappropriation] to move quickly to federal court, with certainty of the rules, standards, and practices to stop trade secrets from winding up being disseminated and losing their value.”[105] As the act approaches its first birthday, the question remains open as to whether it will fulfill completely the goal of a “single, national standard”[106] that Congress had in mind. Given that the statute itself references and incorporates certain vagaries of state law, application of the DTSA may diverge somewhat from federal circuit to federal circuit. Certainly, more judicial interpretation of the act’s key provisions will be needed before any conclusion on that issue can be reached.
There is no doubt, however, that the DTSA renders federal courts far more accessible to victims of trade secret theft. Because of that accessibility, the remedies provided by the act have great appeal, as they are unencumbered by time-consuming procedural obstacles that often impede the efficiency of state court litigation (e.g., cumbersome mechanisms for out-of-state discovery and enforcement of subpoenas, and domestication of interlocutory orders and final judgments in sister states for Full Faith and Credit recognition and enforcement). In the current digital environment of research and development, where information can be obtained by the click of a mouse, speed and efficiency have a high premium. As a consequence, the DTSA likely will be invoked often, and — as each suit gets filed — federal courts will have the opportunity to bring greater clarity to this area of intellectual property law.

Notes

  1. See Amended Complaint (filed March 10, 2017), Waymo LLC v. Uber Technologies Inc.; Ottomotto LLC; and Otto Trucking LLC, 3:17-cv-00939 (N.D. Cal.), at ¶ 4.
  2. Id.
  3. Id. at ¶ 5.
  4. Id. at ¶ 7.
  5. Id. at ¶¶ 3 and 58.
  6. Id.
  7. Id. at ¶¶ 57-61.
  8. Under U.S. patent law, an inventor may file a nonpublication request if certain conditions are met, including that the invention disclosed in the patent application has not been and will not be the subject of patent protection abroad. See 37 C.F.R. 1.213. In such instances, the U.S. application will remain unpublished until the issuance of a patent, if any.
  9. For example, in his 1999 book The Age of Spiritual Machines, futurist Ray Kurzweil posits “The Law of Accelerating Returns,” which includes the theory that evolution builds on its own increasing order, so that it ultimately increases exponentially. See Kurzweil, The Age of Spiritual Machines, Viking, 1999, p. 30.
  10. Indeed, this point appears to be illustrated in the Waymo case, as the plaintiff took pains to assert that its “asserted trade secrets are different than [its] asserted patent rights,” and that its patents “relate to a prior generation of Waymo’s proprietary … designs, whereas Waymo’s trade secrets include elements for subsequent and as of today un-patented and confidential … designs.” See Amended Complaint (March 10, 2017), Waymo LLC v. Uber Technologies Inc.; Ottomotto LLC; and Otto Trucking LLC, 3:17-cv¬00939 (N.D. Cal.), at ¶ 68.
  11. Note that, at the time of the UTSA’s amendment in 1985, personal laptops, flash drives and smart phones were 15 to 20 years on the technological horizon. Indeed, Apple did not introduce its first iPhone (with a mere 4 GB of flash memory) until June 2007.
  12. H.R. REP. NO. 114-529, at 3.
  13. See 18 U.S.C. § 1836(b). A civil action under the DTSA must be brought no later “than three years after the date on which the misappropriation … is discovered or by the exercise of reasonable diligence should have been discovered.” 18 U.S.C. § 1836(d).
  14. H.R. REP. NO. 114-529, at 2.
  15. H.R. REP. NO. 114-529, at 3. See also Amended Complaint (March 10, 2017) at ¶ 1, Waymo LLC v. Uber Technologies Inc.; Ottomotto LLC; and Otto Trucking LLC, 3:17-cv-00939 (N.D. Cal.) (“Otto and Uber have taken Waymo’s intellectual property so that they could avoid incurring the risk, time, and expense of independently developing their own technology. Ultimately, this calculated theft reportedly netted Otto employees over half a billion dollars and allowed Uber to revive a stalled program, all at Waymo’s expense”).
  16. H.R. REP. NO. 114-529, at 6 (emphasis added). While the DTSA seeks to establish a national standard, the House Report stresses that it “does not pre-empt [existing] state laws” but rather “offers a complementary Federal remedy if the jurisdictional threshold for Federal jurisdiction is satisfied.” Id. at 5.
  17. H.R. REP. NO. 114-529, at 13.
  18. Compare UTSA § 1.4 (“‘Trade secret’ means information, including a formula, pattern, compilation, program, device, method, technique, or process …”) with 18 U.S.C. § 1939(3) (“the term ‘trade secret’ means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing”; emphasis added).
    This comparison itself is somewhat imperfect, as some states that have adopted the UTSA also have made slight adjustments to this definition. Compare Tenn. Code Ann. § 47-25-1702(4) with Ky. Rev. Stat. § 365.880(4).
  19. Kuryakyn Holdings LLC v. Ciro LLC, 2017 WESTLAW 1026025 at *6 (W.D. Wisc. 2017).
  20. Id. (quoting IDX Sys. Corp. v. Epic Sys. Corp., 285 F.3d 581, 584 (7th Cir. 2002)).
  21. 2016 WESTLAW 763516 (S.D.N.Y. 2016).
  22. Free Country, 2016 WESTLAW 763516 at *4.
  23. Id. (citations omitted).
  24. Id. (citations omitted). See also Digital Assurance Certification LLC v. Pendolino, 2017 WESTLAW 320830 at *2 (M.D. Fla. 2017) (finding that plaintiff “has not explained the method by which the [customer] list was created or otherwise shown that the information is not readily available from a public source [and thus] has not met its burden to show that the information is a trade secret”).
  25. 2017 WESTLAW 741569 (W.D. Ky. 2017).
  26. Raben Tire, 2017 WESTLAW 741569 at *2.
  27. Id. (emphasis in original).
  28. See Hydrogen Master Rights Ltd. v. Weston, 2017 WESTLAW 78582, at *10 (D. Del. 2017) (finding, inter alia, that “[t]he complaint fails to allege any nexus between interstate or foreign commerce” to invoke the Act, and granting Rule 12(b)(6) motion to dismiss).
  29. Compare UTSA § 1.2 with 18 U.S.C. § 1939(5).
  30. Compare UTSA § 1.1 with 18 U.S.C. § 1939(6).
  31. 18 U.S.C. § 1839(5)(A) and (B).
  32. See Adams Arms LLC v. Unified Weapons Systems Inc., 2016 WESTLAW 5391394 at *5-7 (M.D. Fla. 2016); High 5 Games LLC v. Marks, 2017 WESTLAW 349375 at *6 (D. NJ 2017).
  33. 2016 WESTLAW 5391394 (M.D. Fla. 2016).
  34. Id. at *6.
  35. Id. at *6-7. This likely will be an issue in the Waymo litigation as well, as the plaintiff unequivocally asserts that Levandowski’s conduct occurred in December 2015. See Amended Complaint (filed March 10, 2017), Waymo LLC v. Uber Technologies Inc., et al., 3:17-cv-00939 (N.D. Cal.), at ¶ 4. However, plaintiff did not sue Levandowski. Instead, it sued Levandowski’s companies and Uber, and asserted that those defendants “will continue to misappropriate and use Waymo’s trade secret information for their own benefit” if not enjoined. Id. at ¶ 76.
  36. H.R. REP. NO. 114-529, at 13.
  37. 18 U.S.C. § 1836(b)(2)(A)(i).
  38. Id.
  39. 18 U.S.C. § 1836(b)(2)(A)(ii)(I)-(VIII) (emphasis added).
  40. 18 U.S.C. § 1836(b)(2)(A)(ii)(IV)(aa).
  41. 18 U.S.C. § 1836(b)(2)(A)(i) (emphasis added).
  42. 2017 WESTLAW 655860 (N.D. Ind. 2017).
  43. Id. at *2. The discovery apparently was a fluke: the company was investigating yet-another executive for a “pattern of misconduct involving improper financial payments to persons employed by Magnesita” when it came across the suspect emails. Id.
  44. Id.
  45. Id. at *3.
  46. Id.
  47. Id.
  48. Id. at *2.
  49. Id. at *2-3. Magnesita also sought seizure of the defendant’s personal cell phone. The court denied that request, ruling that, while both the phone and the laptop were the defendant’s personal property, the laptop also was “used for business purposes.” Id. at *3. In contrast, the affidavit and legal brief submitted by the plaintiff were “silent as to concerns regarding Mishra’s cell phone.” Id.
    Also, rather than instructing the U.S. Marshal to seize the laptop, the court ordered the defendant to turn over the laptop to plaintiff’s counsel, and further ordered that plaintiff’s counsel “shall not review any of the contents of the laptop prior to delivering it to the Clerk of the Court.” Id. at *4.
    While not discussed in the Magnesita opinion, the DTSA also provides instruction as to how seized materials should be secured once they are in the custody of the court. See 18 U.S.C. § 1836(b)(2)(D). Such materials should be “secured[d] … from physical and electronic access”; any storage mediums should be secured from “connect[ion] to a network or the Internet”; the confidentiality of any seized materials “unrelated to the trade secret information” must be preserved; and the court “may appoint a special master to locate and isolate all misappropriated trade secret information and to facilitate the return of unrelated property and data.” 18 U.S.C. § 1836(b)(2)(D)(i)-(iv).
  50. 18 U.S.C. § 1836(b)(3)(A)(i).
  51. 18 U.S.C. § 1836(b)(3)(A)(i)(I)-(II).
  52. H.R. REP. NO. 114-529, at 12.
  53. See, e.g., PepsiCo Inc. v. Redmond, 54 F.3d 1262, 1268 (7th Cir. 1995).
  54. Id.
  55. Id. at 1264.
  56. Id.
  57. Id. at 1270.
  58. Id. (“PepsiCo has not contended that Quaker has stolen [Pepsi’s] formula or its list of distributors”).
  59. Id. at 1267.
  60. Id. at 1269.
  61. See, e.g., H.R. REP. NO. 114-529, at 12 n.12.
  62. 18 U.S.C. § 1836(b)(3)(A)(i)(I) (emphasis added).
  63. H.R. REP. NO. 114-529, at 6.
  64. 2016 WESTLAW 7034976 (D. Colo. 2016).
  65. See Engility Corp., 2016 WESTLAW 7034976 at *1-2.
  66. Id. at *2-3. Specifically, plaintiff presented evidence (including video surveillance images) that the defendant turned in two work computers on his last day of work (i.e., Aug. 29, 2016), and sometime thereafter “surrendered … a flash drive full of Engility information, but with a ‘date modified’ metadata date of Aug. 30, 2016, as to most of that information.” Id. at *3-4. According to plaintiff, the contents of the flash drive included trade secrets (e.g., a “cost loading process” for determination of product pricing, “profitability information,” customer contacts and information regarding specific customer needs, “product designs and equipment configuration,” and information regarding prospective business opportunities for plaintiff), and plaintiff contended that defendant continued to retain possession of copies of that information through another unknown medium. Id at *3.
  67. Id. at *10.
  68. Id.
  69. Colo. Rev. Stat. § 8-2-113(2) (emphasis added).
  70. See Engility Corp., 2016 WESTLAW 7034976 at *10.
  71. 18 U.S.C. § 1836(b)(3)(B)(i)((I)-(II).
  72. Engility Corp., 2016 WESTLAW 7034976 at *10 (quoting Colo. Rev. Stat. § 8-2-113(2)). See also id. at *11.
  73. 18 U.S.C. § 1836(b)(3)(B)(i)(I)-(II) (emphasis added).
  74. 18 U.S.C. § 1836(b)(3)(B)(ii).
  75. H.R. REP. NO. 114-529, at 13 n.13.
  76. H.R. REP. NO. 114-529, at 13.
  77. 18 U.S.C. § 1836(b)(3)(A)(iii).
  78. Id.
  79. 18 U.S.C. § 1836(b)(3)(C) (emphasis added).
  80. 18 U.S.C. § 1836(b)(3)(D). A defendant also may recover attorneys’ fees “if a claim of misappropriation is made in bad faith, which may be established by circumstantial evidence.” Id. Lastly, either side may recover attorneys’ fees if “a motion to terminate an injunction is made or opposed in bad faith.” Id.
  81. 18 U.S.C. § 1833(b)(3)(C). Note that the DTSA expansively defines “employee” to include “any individual performing work as a contractor or consultant for an employer.” 18 U.S.C. § 1833(b)(4).
  82. 18 U.S.C. § 1833(b)(1)(A)(i)-(ii) (emphasis added).
  83. 18 U.S.C. § 1833(b)(1)(B).
  84. 18 U.S.C. § 1833(b)(2)(A)-(B).
  85. See note 16, supra.
  86. 18 U.S.C. § 1833(b)(1) (emphasis added).
  87. Note that the DTSA expansively defines “employee” to include “any individual performing work as a contractor or consultant for an employer.” 18 U.S.C. § 1833(b)(4).
  88. 18 U.S.C. § 1833(b)(3)(A).
  89. 18 U.S.C. § 1833(b)(3)(D).
  90. 18 U.S.C. § 1833(b)(3)(B).
  91. H.R. REP. NO. 114-529, at 16.
  92. 2016 WESTLAW 815827 (S.D. Fla. 2016).
  93. 18 U.S.C. § 1030(a)(2)(C) (“[w]hoever … intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains … information from any protected computer” violates the Computer Fraud and Abuse Act”).
  94. 18 U.S.C. § 2701(a) (“whoever … (1) intentionally accesses without authorization a facility through which an electronic communication service is provided; or (2) intentionally exceeds an authorization to access that facility; and thereby obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system” violates the Stored Communications Act.”).
  95. 4:16-cv-40154 (D. Mass.).
  96. Slip Opinion, Unum Group v. Timothy Loftus (Docket No. 16) at 1.
  97. Id. at 2.
  98. Id. at 3.
  99. Id. at 1, 3-4.
  100. Id. at 4.
  101. Id. at 7.
  102. Id.
  103. Id. at 4-5 (emphasis in original).
  104. Id. at 7-8.
  105. H.R. REP. NO. 114-529, at 6.
  106. H.R. REP. NO. 114-529, at 6 (emphasis added).

Andrew P. Campbell ANDREW B. CAMPBELL is a partner with Wyatt Tarrant & Combs LLP in Nashville, a member of the firm’s litigation & Dispute Resolution Service Team. His litigation practice at the trial and appellate level includes commercial litigation, contract law, insurance receivershps and asset recovery, copyright and trademark law, and construction law. He earned his law degree from Vanderbilt University, serving as associate editor of the Journal of Transnational Law.

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