Trade Secrets Venue Considerations

Identifying each and every consideration that might go into venue selection for a trade secrets claim would be an impossible task. Indeed, the options available in any case start with a fact-dependent jurisdictional analysis that will be particular to the dispute. But there are a number of common issues that arise in the consideration of venue for most trade secrets disputes, and this article attempts to address them. It begins with a discussion of venue decisions made in predispute settings, normally months or years in advance of a dispute, in the context of negotiating commercial agreements containing nondisclosure requirements. Future litigants frequently make decisions in their written agreements—e.g., choice of law, choice of forum, and alternative dispute procedures—that will later frame their available venue options. After discussing the good and the bad of these predispute venue choices, we move on to address some of the chief factors that might affect a potential trade secret plaintiff's venue analysis, in light of the UTSA, CFAA, DTSA, and other potentially applicable state law. These considerations are sometimes thought through in advance by careful drafters of commercial agreements, but ordinarily they are evaluated only after a dispute arises, as the apparent victim of misappropriation decides on the most appropriate venue for the claim.

Advance Agreements

An increasing number of trade secrets disputes involve network intrusions by third parties—commonly referred to as hacking cases. These cases normally involve parties that have no prior relationship. But most trade secrets disputes still result from commercial arrangements in which persons and companies, or a group of two or more companies, negotiate a written agreement governing their interactions, including how they will share and use otherwise confidential information as part of a joint business effort. Joint ventures, merger negotiations, combined research efforts, company break-ups, and employment agreements frequently contain specific nondisclosure provisions along with a host of other terms affecting venue. Stand-alone nondisclosure agreements have become ubiquitous in nearly every type of interaction between competitors, and they almost always contain key terms that drive (sometimes without much apparent thought) subsequent venue deliberations when a dispute arises.

Stating the obvious, those who sign written agreements with nondisclosure provisions can help prepare for later controversies by making strategic, careful venue decisions during contract negotiations. This is normally the only stage in which a party that sees itself as a potential future defendant will have any power to shape venue decisions. And, for future plaintiffs, the resulting written agreement can be very helpful in securing the right venue when it comes time to bring a claim to protect confidential information. When done improperly, on the other hand, rather than help they can regrettably restrict quality options for potential plaintiffs, forcing them into a venue that is not the best for their claim.

Alternative dispute resolution clauses. It is not news that use of arbitration is growing both dramatically and intentionally. Arbitration is a popular alternative to court litigation, largely because of its more streamlined procedural approach and claimed cost savings. (Whether arbitration is actually a cost-saving option is a much debated topic and outside the scope of this article.) But arbitration can have serious drawbacks for trade secrets cases, which pose problems that are sometimes uniquely suited for courts to handle. For example, most courts have procedures for emergency situations in which a party needs to quickly obtain some form of interim relief, be it in the form of a temporary restraining order, preliminary injunction, or expedited discovery. A few arbitral institutions are promoting their ability to work quickly in emergency situations, but there's little doubt they are viewed as slow and that many courts can spring into action more rapidly. Some jurisdictions will issue emergency orders, in the appropriate circumstances, very quickly—in as much time as it takes the plaintiff to draw up basic papers and appear at the local courthouse with evidence showing the need for fast action and the potential for irreparable harm. (Some states have specific provisions allowing for interim judicial relief even when a commercial agreement contains an arbitration provision, and many agreements provide for emergency court proceedings even in the face of an agreement to arbitrate. At that point, however, the thoughtful drafter of a dispute resolution clause might consider whether the prospect of multiple proceedings—an emergency injunctive order in public court and an arbitration proceeding for damages in private arbitration—is desirable from both a dispute management and cost perspective.)

Along the same lines, trade secrets disputes sometimes call for the quick disclosure of vital information, for both plaintiffs and defendants, to evaluate allegations of misappropriation and allow for informed decisions on applications for interim relief. Court-ordered expedited discovery is available in many public jurisdictions upon request. The odds of obtaining fast, intrusive discovery are lower in an arbitration proceeding, which may only allow for limited discovery generally, far removed from the discovery tools that are so frequently necessary to determine what has occurred between the parties leading up to a preliminary injunction hearing.

These speed challenges exist in arbitration because the process is intentionally designed to be efficient. Arbitration exists at least partially because litigants grew tired of the cost and burden of discovery. Discovery tools and procedures normally available in courts are frequently unavailable or limited in arbitration. Yet this is another reason someone considering a nondisclosure provision of an important agreement might think twice before adding a promise to arbitrate. Victims of trade secrets misappropriation frequently need thorough discovery, including the services of an electronic forensics expert who can examine networks, hard drives, and other data locations to determine which files were transferred, to whom, and when. Forensic examinations in trade secrets cases frequently uncover evidence of data destruction and the use of off-network data devices to transport electronic files, circumstances that result in the need for even more intrusive discovery efforts to locate missing data and uncover electronic tracks of misappropriation and evidence destruction. These are not circumstances in which limited discovery is helpful, just the opposite. A strong decision maker, with pointed discovery tools and the backing of the state, is frequently necessary to cut through complicated webs of file transfers and evidence destruction. One should surely consider when drafting an important agreement whether arbitration, created in part to limit discovery, is the best place to manage disputes that increasingly need aggressive discovery methods. (An experienced drafter, likely working with an experienced litigator, could probably address all of these arbitration weaknesses with a carefully crafted arbitration agreement with specific provisions relating to interim relief, expedited discovery, electronic and forensic protocols, and other issues common to trade secrets disputes.)

In addition to arbitration, other alternative dispute resolution tools may also be a less-than-perfect fit for trade secrets disputes. Prefiling mediation requirements and stepped-up executive meeting requirements can also throw a monkey wrench into disputes that require fast action. Consider them carefully in the context of nondisclosure agreements.

Choice of venue provisions. Any agreement on the specific venue for a potential dispute will be, quite obviously, important to the eventual dispute. Normal considerations will play a role—is one of the parties headquartered in or is a significant employer located within the contemplated venue? Are there concerns over the quality of the court or jury pool? These are the same considerations that a focused plaintiff will contemplate when evaluating the right venue for any case, including trade secrets disputes.

Quality of Courts

Some courts are viewed as better than others, especially when it comes to the adjudication of cases involving complex technical matters. Even in jurisdictions with quality courts, do those in the courthouse have experience managing complex technology disputes, or do they spend most of their time on immigration, criminal, Social Security, or local small business cases? Indeed, in some jurisdictions, judges rise from the ranks of local prosecutors and political groups, arriving on the bench with no experience managing complex technology disputes. Looking at the extremes, a federal judge supported by a group of high-quality law clerks, in a jurisdiction with few vacancies but many technology cases, might be a far superior case manager than an elected state court judge with little support and an overflowing docket of criminal and family law matters. Most venue evaluations don't reveal such a stark comparison, but some do, and the quality of the courts and the pool of potential jurors that live around them should always be thoroughly evaluated.

Differing Views on the UTSA

There are, of course, substantive law considerations when selecting a venue (either in a predispute written agreement or in a postdispute evaluation of where to file). State trade secrets laws will be part of those considerations.

The UTSA was originally commissioned because then existing trade secrets laws contained many "uncertainties and ambiguities," and the UTSA aimed to make trade secrets laws more clear and consistent across jurisdictions. The UTSA has largely been a success, bringing order with adoption across nearly all of the United States. But the laudable and ambitious goal behind the statute has not eliminated all "uncertainties and ambiguities." While the law is ostensibly uniform, states have adopted different versions of the UTSA, and courts have applied significantly different interpretations to the sections that have been uniformly adopted. In some circumstances, while reading up on varying interpretations of the same words, one might wonder if the U in UTSA stands in a few circumstances not for "uniform" but instead for "unsettled" or "unpredictable."

The breadth of the many differences in UTSA interpretation is beyond the scope of this article. But, for example, there are considerable disagreements among courts regarding preemption. See UTSA § 7. The preemptive effect states give to their UTSAs is significant because it may determine what claims can be brought and the types of relief that can be obtained. Examples of these potentially preempted claims are theft, conversion, unjust enrichment, common law misappropriation, and unfair competition.

States vary on how broadly they permit the UTSA to preempt other claims. See Warrington S. Parker III & Daniel D. Justice, "The Differing Approaches to Preemption Under the Uniform Trade Secrets Act," 49 Tort Trial & Ins. Prac. L.J. 645 (2014). The majority takes a broad view of the UTSA's preemptive effect. Their courts have held that the UTSA preempts all common-law torts claims based on the misappropriation of information even if that information does not meet the definition of a "trade secret" under the UTSA. See, e.g., Mortg. Specialists, Inc. v. Davey, 904 A.2d 652, 664 (N.H. 2006) ("[T]he [New Hampshire UTSA] preempts claims that are based upon the unauthorized use of information, regardless of whether that information meets the statutory definition of a trade secret."). Conversely, a minority view holds that the UTSA only preempts claims involving misappropriation of information that qualifies as a "trade secret" under the statute. See, e.g., Burbank Grease Servs., LLC v. Sokolowski, 717 N.W.2d 781, 793–94 (Wis. 2006) ("[A]ny civil tort claim not grounded in a trade secret, as defined in the statute, remains available to [the plaintiff]."). For an overview of how state UTSAs define "trade secret," see Sid Leach, "Anything but Uniform: A State-by-State Comparison of the Key Differences of the Uniform Trade Secrets Act," Snell & Wilmer (2015).

Remedies and damages is another area in which courts have taken different paths. For example, a key difference between the UTSA and California's version of the law is the availability of money damages when a defendant unknowingly misappropriates a trade secret. Under the UTSA, a court can refuse to order money damages if it would be inequitable, such as situations in which the defendant materially and prejudicially changed positions prior to knowing of the misappropriation. California carves out no exception for unsuspecting defendants. See "The Uniform Trade Secrets Act: Differences from the Common Law and from State to State," Quinn Emanuel: Bus. Litig. Rep. (July 2014). Other differences include the availability of attorney fees, the ability to seek damages measured by a reasonable royalty, and the availability of punitive damages when a party maliciously misappropriates a trade secret.

Other State Law Considerations

In addition to the UTSA, and in large part depending on the preemption rules of a venue, there are likely other state laws to consider. First, nearly every state has an unfair competition or unfair business practices law, which may provide another ground for relief. Second, it may be necessary to apply a state's rules and remedies for spoliation of evidence. A potential defendant has a duty to preserve evidence relevant to litigation once he or she knows or should know of legal action, but in reality, many wrongdoers will attempt to hide their conduct by destroying evidence. In some states, spoliation of evidence is a tort and a plaintiff can recover money damages. Other states do not recognize this tort so the only available remedy may be a court sanction. See Margaret M. Koesel et al., Spoliation of Evidence: Sanctions and Remedies for Destruction of Evidence in Civil Litigation 4 (3d ed. 2013). Even if there is no indication of evidence destruction at the outset of litigation, it is an increasingly common issue, and remedies for this form of misconduct have become increasingly essential in trade secrets cases. The most sophisticated evaluators of venue will be aware of how each potential venue approaches spoliation sanctions.

Finally, state computer fraud statutes can play an important role in trade secrets cases, which often involve use and misuse of computers. Some states lack computer fraud statutes, whereas other states like California and Wisconsin have strong computer fraud statutes that may provide another ground for relief. For example, California's Comprehensive Computer Data Access and Fraud Act contains broader language than the federal CFAA and prohibits a greater range of conduct. See Jonathan H. Blavin, "Scope of Crime Law Upturned," Daily J. (Oct. 5, 2015). Trade secrets litigators should be familiar with which states have computer fraud statutes and their scopes.

The Computer Fraud and Abuse Act

The CFAA is a federal statute that provides a civil cause of action against whoever "intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains . . . information from any protected computer." 18 U.S.C. § 1030(a). Courts have been surprisingly divided on the applicability of the CFAA to trade secrets cases. In the two cases discussed below, the courts had completely different interpretations of the CFAA's "without authorization" language, even though the facts were similar. First, in Shurgard Storage Centers v. Safeguard Self Storage, Inc., the federal court in Seattle held that an employee violated the CFAA by accessing his employer's proprietary information "without authorization." 119 F. Supp. 2d 1121, 1124–25 (W.D. Wash. 2000). Even though the employee had "full access to all the information," the fact that he obtained and used the information for the purpose of helping a competitor means he acted "without authorization." Id. This decision shows that, as long as there is an improper purpose, a person can violate the CFAA even if he or she was allowed to access the misappropriated information. This is a broad interpretation of the CFAA that, not surprisingly, can be very helpful in trade secrets cases involving computer networks.

In sharp contrast, a federal district court in Maryland interpreted the CFAA's "without authorization" language narrowly, guided by the CFAA's origins as an antihacking statute. In International Ass'n of Machinists & Aerospace Workers v. Werner-Masuda, the court held that an employee could not be held liable under the CFAA after she accessed confidential information on her employer's proprietary website in order to send the information to a competitor. 390 F. Supp. 2d 479, 499 (D. Md. 2005). Because the employee was allowed to access the website and confidential information, it didn't matter that she did so for the purpose of unauthorized disclosure or use of the information. Under this interpretation, the CFAA would still apply to cases in which outside parties hack and steal a company's trade secrets, but the statute would not be applicable to many situations in which insiders such as employees and business partners misappropriate information to which they have access. Courts across the country have largely come down on one side or the other of this CFAA divide, and the U.S. Supreme Court does not appear poised to fix the split anytime soon. As a result, where computer networks are involved (which, in modern times, is nearly every case), any venue analysis should take the CFAA and its varying interpretations into account.

Conclusion

Despite attempts to make trade secrets law uniform, there remain differences in the law from one jurisdiction to another. Potential litigants can take control of this uncertainty by making advance agreements on where and how a future dispute will be resolved, including whether to use arbitration or other predispute resolution procedures. As discussed above, although arbitration has benefits, the unique demands of trade secrets cases may better suit them for the courts. Even then, selecting a court requires careful consideration. Some have different applications of the Uniform Trade Secrets Act and the Computer Fraud and Abuse Act, and each state has other laws relevant to trade secrets such as rules governing destruction of evidence. Because the claims and remedies available for trade secrets misappropriation vary across jurisdictions, potential venues should be thoroughly evaluated with the awareness that venue selections can be important to the outcome of a case.

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