July 31, 2017 Practice Points

Tips for Filing a Trade Secret Action after Enactment of the DTSA

Opting for a DTSA claim in federal court is not necessarily the automatic choice that many thought it would be.

By Abraham Y. Skoff

The Defend Trade Secrets Act, Pub. L. No. 114-153 (DTSA), took effect on May 11, 2016. The act had nearly unanimous support in Congress and had been eagerly anticipated as providing significant new protection to U.S. trade secrets, including a federal forum, the possibility of judicial seizure orders, and remedies for foreign trade secret theft. 

The DTSA established a federal civil remedy for trade secret misappropriation, some means for dealing with trade secret misappropriation involving foreign actions and actors, as well as federal court jurisdiction for DTSA claims—thus permitting broadly scoped discovery in federal courts familiar with e-discovery, nationwide subpoena power, and other benefits. In addition, since the DTSA does not preempt state law, DTSA claims in federal court can be coupled with state law claims, pursued under the federal court’s supplemental jurisdiction. Some believed that litigation under the DTSA would largely replace state court litigation over trade secrets.

A year has now passed since the enactment of the DTSA, and many are evaluating the experience with the new statute. On the practical side, counsel must decide whether to bring new cases in federal court, under the DTSA, or to pursue state law remedies in state court. Contrary to the anticipated reaction, opting for a DTSA claim in federal court is not necessarily the automatic choice that many thought it would be. Despite the many advantages of a federal forum, several factors are relevant in determining where to file and what to assert:

Injunctive relief standard. While the injunctive relief standards articulated by state and federal courts may sound the same, the practical reality of obtaining injunctive relief may differ greatly from state to federal court. Certain state courts, as a matter of practice, may more readily grant injunctive relief based on long-standing state practice and precedent, and unencumbered by the requirements of such cases as eBay, Inc. v. MercExchange LLC, 547 U.S. 388 (2006). Specifically, (1) whether the plaintiff will be obligated to demonstrate irreparable harm for trade secret misappropriation; (2) whether irreparable harm will be presumed because a trade secret was misappropriated; or (3) whether the requirement of establishing irreparable harm will be dispensed with, because plaintiff seeks injunctive relief under what is found to be an appropriate statute—be it the DTSA or the UTSA—are potentially determinative questions in analyzing the choice of a state or federal forum. Compare, e.g., Faiveley Transport Malmo AB v. Wabtec Corp., 559 F. 3d 110 (2d Cir. 2009) and Campbell Soup Co. v. ConAgra, Inc., 977 F.2d 86, 92 (3d Cir. 1992) with InnoSys, Inc. v. Mercer, 362 P.3d 1013, 1021-1024, and Dissenting Op., at 1030-1031. (Utah 2015). The DTSA itself does not include an express presumption for misappropriation.

Appellate relief. In federal court, parties may obtain immediate appeal of the grant or denial of preliminary injunctive relief, see 28 U.S.C. § 1292, but are not otherwise entitled to obtain piecemeal appellate review. See Rule 54(b), F. R. Civ. P. State court practice may differ significantly, and provide for a very different rule on appellate review.

Jury unanimity. Once the case is past the preliminary injunctive stage, trial considerations could have impact. Where plaintiff is entitled to a jury trial, the requirement of unanimity for federal civil juries, see Rule 48, F. R. Civ. P., may not be applicable in state court. Compare, e.g., N.Y. CPLR 4113

E-discovery. While it is certainly true that U.S. district courts are experienced in addressing e-discovery, and that, under the DTSA, U.S. district courts can address the conduct of international defendants, not every matter requires the level of sophistication (and cost) that accompanies such cases. Where extensive e-discovery is not contemplated, state court may be more limited in scope and preferable. 

Orders of seizure. Orders of seizure were controversial as the DTSA wound its way through Congress, and several safeguards were added to this remedy. The experience of the past year is that courts are extremely reluctant to issues seizure orders (or any kind of ex parte order); so, except in the case of the trade secret thief getting ready to carry off trade secrets to a distant land, the plaintiff is extremely unlikely to obtain such an order. Unless your facts justify such relief, don’t file in federal court on the assumption that you will obtain a seizure order on “garden variety” factual circumstances. 

Other factors. A DTSA claim is available only to the “owners” of a trade secret, 18 U.S.C. § 1836(b)(1), a requirement not typically found in state law. Section 1836(b)(1) also limits the remedy to misappropriation of a trade secret “related to” a “… product or service used in, or intended for use in, interstate or foreign commerce.” And the DTSA provides a remedy only if misappropriation or use occurred after the date of enactment, May 11, 2016. Case law, which is sometimes conflicting, indicates that, while some conduct can have occurred prior to May 11, 2016, some act of misappropriation or misuse must occur after May 11, 2016, to state a claim under the DTSA. Law in this area is still developing.

On the other hand, subject to federal pleading requirements, the DTSA does not require the degree of specificity in pleading misappropriation that is required under the law of some States.  And the DTSA makes provision for the award of attorney fees. While the UTSA also provides for attorney fee awards, some key states—New York and Massachusetts—have not adopted the UTSA, and the fee shifting provision of the DTSA would be of interest to litigants in those states. 

Where there is diversity or another federal claim, the defendant may remove to federal court, even if the plaintiff opts for state court in the first instance. Nevertheless, the DTSA should not be used as a “one size fits all,” pushing all cases into federal court.

Abraham Y. Skoff, Esq. is a partner at Moses & Singer LLP in New York City, New York.

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Abraham Y. Skoff – July 31, 2017