A recent decision in the Northern District of Illinois gave life to the inevitable disclosure doctrine under the Defend Trade Secrets Act. Inevitable disclosure is a common law doctrine by which a court can prevent a former employee from working for a competitor of his or her former employer where doing so would require the employee to depend upon his or her former employer’s trade secret information. See, e.g., PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995). To date, some commentators have suggested that the inevitable disclosure doctrine is not available under the DTSA because of language in the statute indicating that any injunction granted under the statute to prevent trade secret misappropriation may not “prevent a person from entering into an employment relationship,” and that any conditions placed on employment must be based on “evidence of threatened misappropriation and not merely on the information the person knows.” The Northern District of Illinois’s decision in Molon Motor and Coil Corp. v. Nidec Motor Corp., No. 16 C 03545 (N.D. Ill. May 11, 2017), however, suggests that the inevitable disclosure doctrine may continue to be useful for trade secret plaintiffs asserting claims under the DTSA.
A recent decision in the Western District of Kentucky highlights the importance of explaining in a complaint under the Defend Trade Secrets Act why the allegedly misappropriated information qualifies for trade secret protection. The decision is an important reminder that it is not enough to simply call something a “trade secret” in a complaint under the DTSA. Rather, a plaintiff must plausibly allege how the information qualifies as a trade secret. Where a plaintiff fails to do so, the complaint is susceptible to dismissal with prejudice under Fed. R. Civ. P. 12(b)(6).
As regular readers of this blog will know, our cross-disciplinary Trade Secrets team has been closely monitoring the development of the Defend Trade Secrets Act (DTSA).
In a webinar organized by The Knowledge Group, Bret Cohen will discuss the DTSA in 2017, and will address the following topics:
- The DTSA Under Trump’s Administration
- Defend Trade Secrets Act – In the 2017 Landscape
- DTSA in the 2016 Landscape: A Recall
- Trade Secret Litigation Trends in 2017
- Trade Secret and Non-Compete Law
- Investigations Under DTSA
- DTSA Injunctions
- Seizure Provisions of the DTSA
- Threatened Disclosure vs Inevitable Disclosure Injunctions
- New Immunity for Whistleblowers
- Recent Cases and Hot Topics
The Defend Trade Secrets Act (DTSA) civil seizure mechanism provides victims of trade secret theft with a tool to immediately freeze dissemination of stolen proprietary information. Using civil seizure, a court may direct federal marshals to seize property necessary to prevent the promulgation of stolen trade secrets. Civil seizure can only be employed in “extraordinary circumstances,” however, and a request for civil seizure has never been granted, though only a handful of requests have been made under this DTSA mechanism, which is still less than a year old (the most recent request was denied in the Northern District of California in OOO Brunswick Rail Mgt., et al. v. Sultanov, et al., No. 5:17-cv-00017 (N.D. Cal. Jan. 6, 2017)).
The story of civil seizure and the DTSA does not end there. Continue Reading The DTSA and Civil Seizure Under Federal Rule of Civil Procedure 65
As regular readers of the Global IP Matters blog will know, our cross-disciplinary Trade Secrets team recently published an article through the ABA’s Business Law Today newsletter focused on the Defend Trade Secrets Act (DTSA). Other publications have inquired about our background in the space and have requested articles with slightly different takes on the impact of the law. On October 26, two such articles were published, one in Bloomberg BNA’s Daily Labor Report and the other in the Boston Patent Law Association’s Fall newsletter.
The importance of the DTSA to business segments across organizations cannot be underestimated, a point driven home by the varying audiences of those three disparate publications – one targeted to corporate counsel generally, another toward human resources and employment-focused lawyers, and the third toward patent and technology attorneys.
Each article on the DTSA takes a slightly different approach and we invite you to read the one (or ones) which match most closely your business focus. If you have questions about the law, do not hesitate to reach out to our experienced team who will be happy to field them.
Boston Patent Law Association’s Fall Newsletter – The DTSA: Examining the DTSA’s Language, Use, and Future
Bloomberg’s BNA Daily Labor Report – Explaining the Defend Trade Secrets Act
On July 5, 2016, in United States v. Nosal, the Ninth Circuit Court of Appeals clarified the definition of “trade secret,” finding that data derived from a compilation of publicly available information can constitute a protectable trade secret in a case involving allegations under the Economic Espionage Act (EEA). The Defend Trade Secrets Act (DTSA) amended the EEA to create a federal private civil cause of action for trade secret misappropriation. Thus, the Ninth Circuit’s opinion in United States v. Nosal provides important guidance regarding the definition of “trade secret” in cases under the DTSA. With this decision, the Ninth Circuit recognizes that a collection of public information can be a protectable trade secret, especially where a proprietary process is used to compile or search that information. Continue Reading Ninth Circuit Provides Clarification Concerning the Definition of Trade Secret
In some of the first decisions under the newly enacted Defend Trade Secrets Act, on June 10 and 22, 2016, United States District Judge Jon S. Tigar granted a temporary restraining order and preliminary injunction in Henry Schein, Inc. v. Cook, No. 16-cv-03166-JST (N.D. Cal. June 10, 2016) that prevents a sales consultant from accessing, using or sharing confidential data that she allegedly stole from her former employer before leaving the company in violation of trade secret laws and employment agreements. These decisions mark the beginning of new jurisprudence under the DTSA that may have significant impact on prospective trade secret actions in the U.S. District Courts and U.S. International Trade Commission.
In 2005, Plaintiff Henry Schein, Inc. (HSI), which is in the business of selling medical, dental, and veterinary supplies, hired the Defendant Jennifer Cook as a sales consultant. As part of her employment, Cook entered into a confidentiality and non-solicitation agreement that required her to hold in confidence confidential information relating to HSI’s business and to not copy or take any such material upon leaving HSI’s employ. In May 2016, Cook resigned from HSI and began working for one of HSI’s competitors. HSI alleged that before leaving HSI, Cook misappropriated HSI’s propriety and trade secret documents with the goal of diverting HSI’s customers by (1) forwarding from her work email to her personal email numerous customer related reports created using HSI’s proprietary software, (2) updating her work laptop with sensitive customer related data and failing to return the laptop for a number of weeks, and (3) remotely accessing proprietary ordering and purchasing data following her resignation. HSI also alleged that Cook attempted to erase the emails she sent to herself from her HSI computer.
“You sued them. They stay, period.” This is the conclusion a Texas trial court came to when asked to exclude the designated representative of a party from a hearing where an employee of the other party, a direct competitor, would disclose his employer’s trade secrets. In a case involving misappropriation of trade secrets between direct competitors M-I Swaco (“M-I”), a subsidiary of Schlumberger, and National Oilwell Varco (“NOV”), the trial court held that to exclude NOV’s designated representative from hearing a disclosure of M-I’s trade secrets would be a “total violation of due process.” On May 20, 2016, the Texas Supreme Court disagreed. See In re M-I L.L.C., No. 14-1045, 2016 Tex. LEXIS 389 (May 20, 2016).
M-I and NOV complete in the business of providing mesh screen filters that filter out solid matter in drilling fluid used in oil drilling, a business area known as solid-control. The dispute at issue originated when Jeff Russo, M-I’s former business development manager, accepted a new position with NOV. M-I alleges that Mr. Russo had in-depth knowledge of M-I’s solid-control business, bidding strategies, pricing information, customer preferences, solid-control systems, and deployment strategies. M-I sought injunctive relief, and during an August 28, 2014 hearing on an application for a temporary injunction, it requested to exclude everyone from the courtroom except the parties’ respective counsels, experts, and testifying witness. NOV’s designated representative, Federico Mezzatesta, would be included in the group to be excluded. The trial court denied the request, and M-I petitioned the court of appeals for a writ of mandamus, which was denied. M-I then petitioned the Texas Supreme Court for mandamus relief challenging the trial court’s refusal to exclude Mr. Mezzatesta from the temporary injunction hearing.
On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA) into law. This important new legislation creates a federal private civil cause of action for trade secret misappropriation in which “[a]n owner of a trade secret that is misappropriated may bring a civil action . . . if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” Defend Trade Secrets Act of 2016, S. 1890, Sec. 2. The statute does not preempt existing state trade secret law regimes, but will exist in parallel, adding an enhanced toolbox of options for American companies’ enforcement of their intellectual property rights.
One provision of the new DTSA that has generated much commentary in the run up to its enactment is the new civil seizure mechanism established by the statute. This mechanism allows a court to “issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” The civil seizure process will allow American companies who are aware of a potential misappropriation of their trade secrets to quickly prevent further exposure of proprietary information during the pendency of a formal DTSA case.
The Defend Trade Secrets Act (DTSA) is now one signature away from becoming law. On April 4, 2016, the Senate unanimously passed the DTSA and, last week, on April 27, the House of Representatives followed suit, passing the DTSA by a vote of 410-2. The DTSA thus has wide bipartisan support and President Obama, who expressed his own strong support for the bill, is expected to sign the bill into law in the near future.
Once enacted, the DTSA will create a federal private civil cause of action for trade secret misappropriation. Under the DTSA, “[a]n owner of a trade secret that is misappropriated may bring a civil action . . . if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” Defend Trade Secrets Act of 2016, S. 1890, Sec. 2. Civil remedies for trade secret misappropriation have previously been a matter of state law, but, with the passage of the DTSA, an additional avenue of redress will be made available for a party seeking to remedy improper acquisition of its trade secrets. The DTSA gives United States district courts original jurisdiction over actions under the statute. The statute will not preempt existing state trade secret laws, but will exist in parallel, adding an enhanced toolbox of options for American companies’ enforcement of their intellectual property rights.
Below is an explanation of some of the salient provisions of the DTSA that American companies should be aware of as the DTSA moves onto the President’s desk. We will be monitoring DTSA jurisprudence following its enactment and will provide continuing commentary on the new law – check back for regular updates.