The Defend Trade Secrets Act (DTSA), Pub. L. No. 114-153, took eﬀect on May 11, 2016. A federal statute that extends the Economic Espionage Act to allow civil lawsuits at the federal level for misappropriation of trade secrets, the DTSA creates a federal cause of action against persons, such as competitors and ex-employees, who misappropriate trade secrets. The statute was created as an intended complement to the Uniform Trade Secrets Act (UTSA), which has been adopted by 48 states. Both prior to passing through Congress with widespread support and after it took effect, the DTSA has been hyped by many commentators as providing signiﬁcant new protections and benefits to companies seeking to protect trade secrets. Among the most noteworthy benefits that brought positive anticipation of the DTSA were that the act provides (1) federal jurisdiction for trade secret claims, (2) statutory remedies to address foreign trade secret theft, and (3) the possibility of ex parte judicial orders to seize wrongfully misappropriated trade secrets.
Three years after its enactment, case law regarding all aspects of the DTSA has begun to slowly, but surely, develop. As an example, in late 2017, the Eastern District of Virginia, in Steves & Sons, Inc. v. JELD-WEN, Inc., No. 3:16-cv-545 (E.D. Va.), addressed a novel question about the breadth of claims under the DTSA and held as a matter of first impression that the DTSA does not allow a private right of action for conspiracy to commit a violation of the DTSA.
Although many questions about application of the DTSA are still unclear, aggregated statistics regarding federal court filings indicate that filings under the DTSA have begun to rapidly increase in 2017 and 2018—a development that we expect will further prompt judicial interpretations of the act. Press Release, PR Newswire, Lex Machina Releases New Trade Secret Litigation Report (July 18, 2018) (comparing 2017 DTSA filings to 2016); Lex Machina, Trade Secret Litigation Report 2018, at 3 (2018). Although the DTSA continues to develop in many respects, this article focuses on the developing interpretations of remedies available under the DTSA.
Ex Parte Seizure Remedy
From a remedy standpoint, the most distinct feature of the DTSA is that it grants a unique remedy allowing a claimant to potentially obtain an ex parte seizure order, as set forth under 18 U.S.C. § 1836(b)(2). A claimant seeking to avail itself of the ex parte seizure remedy must demonstrate all of the following:
- a Rule 65 order is inadequate because the defendant would “evade, avoid, or otherwise not comply with such an order”;
- immediate and irreparable injury will occur if seizure is not ordered;
- the harm to the plaintiff in denying the application outweighs the harm to the defendant and substantially outweighs any harm to third parties;
- the plaintiff is likely to succeed on the merits of the misappropriation claim;
- the defendant is in actual possession of the trade secret or property (or both);
- the plaintiff has identified with reasonable particularity the matter to be seized and, to the extent possible, the location;
- if given notice, the defendant, or persons acting in concert, would destroy, move, hide, or otherwise make inaccessible the trade secret; and
- the plaintiff has not publicized the requested seizure.
18 U.S.C. § 1836(b)(2)(A)(ii).
The DTSA provides, however, that the ex parte seizure remedy is available only under “extraordinary circumstances,” when the remedy is required to stop the “propagation or dissemination” of the trade secrets at issue. Further, the act requires that any court issuing an ex parte seizure order must order a subsequent hearing within seven days after granting the seizure.
Although the novel ex parte seizure remedy has drawn the attention of much of the scholarship and discussion regarding the DTSA, the practical reality has been that most courts are very reluctant to grant ex parte seizure orders. Further, many courts have ruled that a preservation order under Rule 65 is adequate and an ex parte order, in particular, is not necessary. See Dazzle Software II, LLC v. Kinney, No. 1:16-cv-12191 (E.D. Mich. July 18, 2016) (denying request for civil seizure; instead ordering preservation of devices at issue pursuant to Rule 65); OOO Brunswick Rail Mgmt. v. Sultanov, No. 5:17-CV-00017-EJD, 2017 WL 67119, at *1 (N.D. Cal. Jan. 6, 2017) (“[T]he Court finds that seizure under the DTSA is unnecessary because the Court will order that Sultanov must deliver these devices to the Court at the time of the hearing scheduled below, and in the meantime, the devices may not be accessed or modified.”)
Despite the noted reluctance by courts to grant the ex parte seizure remedy that is available under the DTSA, ex parte seizure orders have been issued under the DTSA. See, e.g., Henry Schein, Inc. v. Cook, 191 F. Supp. 3d 1072 (N.D. Cal. 2016). In Henry Schein, the court granted the plaintiff’s motion for a temporary restraining order after concluding that the plaintiff company was likely to succeed on its claims under the DTSA and the California Uniform Trade Secrets Act because the defendant had “e-mailed and downloaded, to her personal devices, confidential information from HSI before leaving her employment to work at a competitor,” and the defendant had also signed an agreement with express provisions for confidentiality. Id. District courts in Texas and Utah have also issued ex parte seizure orders under the DTSA. See, e.g., Thoroughbred Ventures, LLC v. Disman, No. 4:18-cv-00318-ALM (E.D. Tex. May 1, 2018), ECF No. 6 ¶ 15 (ordering ex parte seizure where court found an “extreme likelihood” that defendant would copy the contents of his former employer’s laptop, provide its contents to a co-conspirator, or destroy the data entirely); Axis Steel Detailing, Inc. v. Prilex Detailing LLC, No. 2:17-cv-00428-JNP, 2017 U.S. Dist. LEXIS 221339, at *4 (D. Utah June 29, 2017) (ordering ex parte seizure where, among other things, defendants showed “a willingness to provide false and misleading information” and had previously attempted to delete emails and computer data). The takeaway from recent applications of the DTSA is that, despite the significant attention paid to the ex parte seizure remedy, courts have reserved their approval of it for only extraordinary circumstances. Thus, counsel should carefully consider whether the circumstances warrant the request before moving for an ex parte order.
One important note about the DTSA that bears repeating is that a misappropriation that occurred before the DTSA’s enactment on May 11, 2016, does not give rise to liability under the DTSA. Camick v. Holladay, Nos. 18-3065, 18-3074, 2018 U.S. App. LEXIS 35410, at *9 (10th Cir. Dec. 18, 2018) (“The DTSA only applies to ‘any misappropriation of a trade secret . . . for which any act occurs on or after the date of the enactment of [the] Act’ on May 11, 2016.”). This essential fact of the DTSA relates closely to one of the main notable differences between the UTSA and the DTSA—which is that the UTSA has a provision expressly prohibiting continuing misappropriation claims prior to the enactment of the statute. Conversely, the DTSA is silent on the issue of continuing misappropriation prior to enactment. Courts addressing this question have specifically held that the difference between the DTSA and UTSA on this point was deliberate and should be upheld to allow claims for misappropriation that continues on past the DTSA’s enactment date. See, e.g., Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Grp., Inc., No. 15-CV-211(LGS)(RLE), 2016 WL 5338550 (S.D.N.Y. Sept. 23, 2016); Adams Arms, LLC v. Unified Weapon Sys., Inc., No. 8:16-cv-1503-T-33AEP (M.D. Fla. Sept. 27, 2016).
Damages under the DTSA
In addition to the novel ex parte seizure remedy, it is also notable that the DTSA provides for three different measures of damages:
- actual loss caused by the misappropriation;
- any unjust enrichment caused by the misappropriation; or
- “in lieu of damages measured by any other methods . . . a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret.”
18 U.S.C. § 1836(b)(3)(B).
Where a trade secret misappropriation is proven to be willful or malicious, exemplary damages are also available under the DTSA. Id. § 1836(b)(3)(C). The question of how the varying damages theories will continue to develop and be applied jointly remains somewhat open. Courts have explained that because the DTSA allows for “multiple types of damages that are based on different calculations, computing damages in a trade secrets case is not cut and dry.” See, e.g., Steves & Sons, Inc. v. JELD-WEN, Inc., No. 3:16-cv-545, 2018 U.S. Dist. LEXIS 203593 (E.D. Va. Nov. 30, 2018) (discussing whether a permanent injunction and reasonable royalty damages would amount to double recovery); Steves & Sons, Inc. v. JELD-WEN, Inc., No. 3:16-cv-545, 2018 U.S. Dist. LEXIS 80306 (E.D. Va. May 10, 2018) (discussing damages in the context of a motion for summary judgment); see also E.J. Brooks Co. v. Cambridge Sec. Seals, 31 N.Y.3d 441, 454 (2018) (leaving open whether avoided costs may be used to calculate a plaintiff’s losses in certain instances).
Thus, courts have squarely recognized that there is an open question as to whether a party may apply the different damages theories available under the DTSA, and this is an area that practitioners should watch closely as DTSA case law continues to develop.
Christopher W. Tackett is counsel at Roetzel & Andress, LPA, in Columbus, Ohio.
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