Trade Secret Litigation is Forever Changed

It was not too long ago (September 2013) that Texas adopted the Uniform Trade Secrets Act (TUTSA).  Texas was the 47th state to adopt it.  Having litigated cases in Michigan, Illinois and elsewhere under their respective UTSA statutes, it was a familiar change.  Texas trade secret litigators with experience with UTSA could counsel clients with greater certainty given the availability of far greater legal precedents, though not necessarily in Texas yet.  Now, Texas trade secret lawyers will need to counsel their clients on the ability to rely upon yet another new piece of trade secret law, the federal Defend Trade Secrets Act (DTSA).

Previously, when a case involving trade secret misappropriation arose, a lawsuit claiming violation of the applicable state law pursuant to UTSA was the only course of action.  With the federal law in place, state court is no longer the only venue to litigate trade secret causes of action.  With DTSA, a plaintiff can now sue in federal court.  Note that previously trade secret litigators would try to allege federal violations, such as the Computer Fraud and Abuse Act, in hopes of getting in federal court.

Needless to say, the world of trade secret litigation has changed.  Here is a top 5 things to know about the Defend Trade Secrets Act:

  1. Interstate Commerce.  The trade secret misappropriation only applies to products or services that have moved through interstate or foreign commerce.  The reality is that in the digital age, most products and services are advertised via a website and made available for purchase throughout the world.
  2. Prediscovery Trade Secret Identification.  Strictly speaking based upon the statutory language of DTSA, the trade secret need not be identified with reasonable particularity.  Under UTSA, if a plaintiff fails to identify a trade secret with reasonable particularity, motion practice can ensue and the lawsuit may stall until this requirement is met to the satisfaction of the judge.  This can become particularly onerous for plaintiffs, especially in software trade secret litigation and cases involving combination trade secrets.  It will be interesting to see how the case law develops surrounding DTSA because defendants always seek to narrow the identification and thus scope of the alleged violation.
  3. Ex Parte Civil Seizure.  DTSA specifically provides for the remedy of seizure of the property subject to the trade secret misappropriation.  While state courts can order the same, federal courts have authority based upon a stated statutory remedy with DTSA, which can be attractive to plaintiffs.
  4. Preemption.  UTSA preempts related state tort claims (e.g. unjust enrichment, conversion, etc.).  DTSA does not have the same statutory preemption, though again it will be interesting to see if case law develops in such a way that the limits a plaintiff’s ability to add state tort causes of action.  This one becomes particularly important where an employer has failed to give the statutorily required whistleblower immunity notice under DTSA, thus limiting the ability to recover exemplary damages and attorneys fees, though not limiting the ability to pursue a DTSA lawsuit.
  5. Inevitable Disclosure.  Under UTSA, a state court could issue an injunction where an employee left and his/her knowledge of the trade secret would lead to inevitable disclosure to the new employer, typically referred to as threatened misappropriation.  Under the federal DTSA, evidence of actual misappropriation appears necessary.

Ultimately, having a federal trade secret misappropriation cause of action is a new, powerful tool for trade secret owners and those who need to become plaintiffs in trade secret lawsuits.  Trade secret litigators take note.


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