Companies typically strive to increase profits by winning over consumer favoritism. As such, an organization may focus on building the company’s trade secret portfolio and fiercely protecting its competitive edge of confidential business information.[1]
A trade secret is broadly defined as, “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, design, prototype…”[2] A trade secret owner must employ “reasonable measures” to ensure confidentiality of such information to seek protection against its disclosure.[3] The information must carry its own “economic value, actual or potential.”[4] Economic value can be shown where the information is generally unknown or difficult to acquire by others who could benefit from the information.[5] Information that qualifies as a trade secret is easier to keep it confidential.[6] When others employ improper means to acquire a trade secret, it constitutes misappropriation,[7] which allows the injured party to recover damages.[8] An improper means includes “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.”[9] Alternatively, it is lawful to acquire another’s trade secrets through research or reproduction from known information (also known as independent derivation and reverse engineering)[10] since trade secrets lose impact in industries with “a high propensity to patent.”[11] Accordingly, trade secrecy laws seek to encourage fair competition and protect the interests of intellectual property.[12]
Before 2016, most states followed the Uniform Trade Secrets Act (“UTSA”) which was published by the Uniform Law Commission and incorporated major common law principles to govern trade secret misappropriation in civil claims.[13] However, some states, such as New York and North Carolina, followed their own distinctive formulations of trade secret law.[14] Thus, the plaintiffs of trade secret misappropriation actions were often forced to use different legal procedures depending on which state’s law was applicable.[15] This inconsistency led to Congress’s passage of The Defend Trade Secrets Act of 2016 (“DTSA”),the goal of which was to create both a uniform body of federal trade secret law and an established federal jurisdiction for claims under the DTSA.[16] The DTSA provides a federal cause of action, while also promoting “safety” for employees who unintentionally disclose trade secrets when attempting to report such violations, through the protections of a seizure remedy provision.[17] In “extraordinary circumstances,” where it is “necessary to prevent the propagation and dissemination of the trade secret,” the court may grant an ex-parte seizure under the provision.[18] However, the courts have difficulty in applying the DTSA to certain cases.
Recent cases demonstrate that the DTSA has allowed for more protections of trade secrets alongside pre-existing state law. Prior to the DTSA, trade secret misappropriation was governed solely by state laws for civil claims.[19] Without pre-empting state law, a DTSA suit could be filed in federal court and those same facts could be used to plead a state law claim.[20] When deciding on a motion for preliminary injunction, one court compared the DTSA and California UTSA claims to analyze the claims of trade secrets misappropriation.[21] Another court had a similar analysis when deciding to grant a temporary restraining order under both Washington state law and the DTSA.[22] Conversely, another court permitted an injunction otherwise prohibited by the DTSA, without separately analyzing the injunction under the Colorado UTSA. The court reasoned “it probably has the same sorts of restrictions as the DTSA,” despite the broader provision for injunctive relief.[23] Further, another court granted a motion for a temporary restraining order exclusively based the Missouri UTSA claim. In a mere footnote, the court stated, “although the Court’s analysis has focused on Panera’s Missouri trade secrets claim, an analysis under the DTSA would likely reach a similar conclusion” and declined to analyze the DTSA claim.[24] In effect, the court’s flexible application of the DTSA alongside state law allows trade secret owners to pick and choose the applicability of state or federal statutes.[25]
Unfortunately, the DTSA has achieved limited impact in the court system.[26] As discussed above, many courts have avoided applying the DTSA federal cause of action and instead, relied on the earlier precedents of state and federal law and remedies. Moreover, the employee protections of the DTSA are facing marginal popularity in court.[27] The ex-parte seizure remedy is “one of the most controversial aspects of the DTSA”[28] becuase “anticompetitive litigation” could allow a company to seize a competitor’s trade secrets.[29] Further, the court requires an evidentiary burden of eight factual findings[30] to show that both a temporary restraining order and preliminary injunction would in insufficient.[31] Because of this further restriction, the useful applicability of the ex-parte seizure raises concern.
Where Congress has sought to either modify or clarify the existing law,[32] we must ask ourselves whether the intentions of Congress are fulfilled by the current approach. Since the Act was enacted with the purpose of delivering a uniform cause of action for trade secret misappropriation,[33] the act should be applied to preempt state law. Although the ex-parte seizure provision has faced criticism in trade secrecy, it provides a special protection for certain circumstances.[34] Due to the strict limits of its application, unfair seizures may be avoided.[35] To note, the ex-parte seizure is a protection of the DTSA that is clearly distinguished from the temporary restraining order and preliminary injunction.[36] The seizure of another business’s trade secrets [37] should not be considered lightly when it can cause the business irreparable damage. Thus, it is sensible for courts to require the evidentiary burden of showing eight factual findings.[38] In return, the plaintiff should be able to make these additional showings “to seize a competitor’s trade secrets.”[39] Moreover, this provision does not prevent the plaintiff from pursuing alternative protections.[40] Since the DTSA was only enacted a few years ago,[41] it is to be expected that courts will take different approaches in its application. Over time, as its provisions become more uniformly settled throughout the country, the DTSA stands to bring much needed clarity to trade secrecy law.
Trade secrecy law can affect companies in many ways.[42] For example, a company’s unreserved ability to acquire the necessary resources to produce trade secrets is undoubtedly linked to that company’s inclination to create those trade secrets.[43] A resourceful and willing company may face difficulty in disclosing the value of its trade secrets to its investors.[44] These difficulties are rooted in premature disclosures of critical inside information. Accordingly, larger companies may use trade secrets to promote research and development and choose to later disclose the company’s value through publicly-procured patents.[45] Conversely, smaller companies may strategically allocate the costs of patenting elsewhere.[46] As such, we must reflect on the evolution of trade secrecy laws and ascertain possible routes of further development.
As previously mentioned, the provisions of the DSTA need to become more uniformly settled throughout the country, more quickly. However, in light of today’s electronic market, the provisions of the DTSA may be necessary since trade secrets can be stolen “with a few key strokes.” DTSA seeks to prevent the wrongful benefit of foreign governments stealing such valuable information.These risks lead to losses in U.S. jobs and hinders continued investment in research and development. Trade secret protection should be modified to promote and regulate fairness in the market.[47]
[1] What is a Trade Secret, World Intellectual Prop. Org., https://www.wipo.int/sme/en/ip_business/trade_secrets/trade_secrets.htm (last visited on Mar. 14, 2019).
[2] 18 U.S.C. §1839 (2016) [hereinafter DTSA]
[3] Id.
[4] Id.
[5] See id.
[6] See supra note 1.
[7] See supra note 2.
[8] See supra note 1.
[9] See supranote 2.
[10] Id.
[11] Alexandra K. Zaby, Losing the Lead: The Patenting Decision in the Light of the Disclosure Requirement, 19 Econ. Innovation & New Tech. 147, 159–60 (2010). (exemplifying pharmaceutical industries).
[12] Morlife, Inc. v. Perry, 66 Cal. Rptr. 2d 731, 734 (Ct. App. 1997).
[13] Id.
[14] Id.
[15] See id.
[16] The Defend Trade Secrets Act of 2016, S.1890, 114th Cong. (as reported by Comm. on the Judiciary, 2016)[hereinafter DTSA]
[17] Brittany S. Bruns, Criticisms of the Defend Trade Secrets Act of 2016: Failure to Preempt, 32 Berkley Tech. L. J. 469, https://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=2165&context=btlj..
[18] See supra note 2.
[19] Bruns, supra note 24 at 469.
[20] Id.
[21] Henry Schein, Inc. v. Cook, No. 16-CV-03166-JST, 2016 WL 3418537 (N.D. Cal. Jun. 22, 2016).
[22] Earthbound Corp. v. MiTek USA, Inc., C16-1150 RSM, 2016 WL 4418013, at *11 (W.D. Wash. Aug. 19, 2016). (“A Washington district court granted a motion based on Earthbound’s current and prospective customers, pending projects, bids, pricing, product design, and other elements of its business, which would lead to irreparable harm if not enjoined, under both Washington state law and the DTSA.”)
[23] Engility Corp. v. Daniels, No. 16-CV-2473-WJM-MEH, 2016 WL 7034976, at *10 (D. Colo. Dec. 2, 2016) (noting that “although Colorado’s statutory restrictions on non-compete provisions restrain ‘the practice of a lawful profession, trade or business,’ the court deemed the injunction necessary in order to avoid abusive use of trade secrets in the defendant’s possession even though such an injunction is prohibited under the DTSA”).
[24] Panera, LLC v. Nettles, No. 4:16-CV-1181-JAR, 2016 WL 4124114, at *4 (E.D. Mo. Aug. 3, 2016), The court granted motion for a temporary restraining order following an analysis of both the Missouri Uniform Trade Secrets Act (MUTSA) and the DTSA.
[25] David S. Levine and Christoper B. Seaman, The DTSA at One: An Empirical Study of the First Year of Litigation Under the Defend Trade Secrets Act, 53 Wake Forest L. Rev. 105 (2018).
[26] The Defend Trade Secret Act: One Year Later, Am. B. Ass’n. (Jun. 29, 2017), https://www.americanbar.org/groups/business_law/publications/blt/2017/04/02_newman/..
[27] Bradford K. Newman, Federal Trade Secrets Protection: Law Would Create More Problems than It Solves, ABA (Jun 29, 2017)https://www.americanbar.org/groups/business_law/publications/blt/2017/04/02_newman/.
[28] See Levine & Seaman, supra note 11, at 118.
[29] Bruns, supra note 24 at 486.
[30] Balearia Caribbean Ltd. Corp. v. Calvo, NO. 16-23300-CIV-WILLIAMS,2017 WL 8780944 (S.D. Fla. Aug. 3, 2017).
[31] Bruns, supra note 24 at 486.
[32] See DTSA, supra note 23.
[33] See DTSA, supra note 23.
[34] See Levine & Seaman, supra note 11, at 118.
[35] Bruns, supra note 24 at 486.
[36] Bruns, supra note 24 at 485.
[37] See DTSA, supra note 23.
[38] See Balearia Caribbean, 2017 WL 8780944.
[39] Bruns, supra note 24 at 486-87.
[40] See DTSA, supra note 23.
[41] Id.
[42] Id. at 155.
[43] See id. at 122.
[44] See id.
[45] See id.
[46] See id.
[47] See, Am. B. Ass’n., supra note 33.
