The Defend Trade Secrets Act of 2016 (“DTSA”) was signed into law on May 12, 2016. The statute amends the Economic Espionage Act of 1996 to provide federal court jurisdiction for civil trade secret misappropriation claims and to provide expanded remedies, including ex parte seizure orders. In the initial months following enactment, federal courts have begun to apply the DTSA to both existing and new cases. The following are selected decisions interpreting the Act.
Applicability to Pre-DTSA Misappropriation
One issue courts have faced in applying the DTSA is whether it applies to misappropriation that occurred prior to the statute’s enactment date. The U.S. District Court for the Middle District of Florida recently ruled that it does apply, as long as the alleged use or disclosure of the trade secrets at issue continued on or after May 12, 2016. Adams Arms LLC v. Unified Weapon Systems, Inc., Case No. 8:16-cv-1503-T-33AEP (M.D. Fla. Sept. 27, 2016). In Adams Arms, the plaintiff alleged that the defendants misappropriated trade secrets related to firearms by obtaining access to technical information about the plaintiff’s manufacturing processes, machinery and tooling used to fabricate high-performance guns under the guise of collaborating on a proposal to sell weapons to a foreign military service. Ultimately, the defendants excluded the plaintiff from the proposal. The plaintiff filed an action on June 16, 2016 alleging several counts, including misappropriation of trade secrets under the DTSA.
The defendants moved to dismiss on the grounds that the DTSA did not apply to the alleged misappropriation. The defendants argued that the DTSA did not apply to misappropriation that commenced prior to May 12, 2016, even if it continued after that date, because the DTSA does not consider misappropriation to be a continuing offense. The defendants relied on the statute of limitations provision in the DTSA, which states that:
A civil action under [DTSA] may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered. For purposes of this subsection, a continuing misappropriation constitutes a single claim of misappropriation.
18 U.S.C. § 1836(d) (emphasis added).
The court denied the motion to dismiss, holding that the DTSA applies to claims for misappropriation based on acts that continued after May 11, 2016, even if it commenced before that date. The court reasoned that § 1836(d) applies only to the Act’s limitations provision. Section 2(e) of the Act, however, provides that the DTSA applies to “any misappropriation . . . for which any act occurs” on or after the May 12 effective date. In addition, the court noted the difference between the DTSA and the Uniform Trade Secrets Act:
At the least, this language suggests that when an “act” occurs after the effective date, a partial recovery is available on a misappropriation claim. Supporting this interpretation, the Court notes that Congress omitted from DTSA the following language from Section 11 of the UTSA: “With respect to a continuing misappropriation that began prior to the effective date, the [Act] also does not apply to the continuing misappropriation that occurs after the effective date.” UTSA, Section 11.
As a result, the court ruled that the plaintiff could state a claim under DTSA for misappropriation continuing after the effective date, including repeated acts disclosing the trade secrets, even though the defendant’s alleged misappropriation in acquiring the trade secrets ended before May 12.
The U.S. District Court for the Southern District of New York reach a similar conclusion in Syntel Sterling Best Shores Mauritius Ltd. v. Trizetto Group, Inc., Case No. 15-CV-211 (Sept. 23, 2016 S.D.N.Y.). In Syntel, the court rejected defendant’s argument that the amended complaint claim of misappropriation should be dismissed because it was based on pre-DTSA activities. Like the court in Adams Arms, the Syntel court ruled that the DTSA applied to the alleged misappropriation even though it began prior to the Act’s effective date:
The plain language of the Act defines misappropriation to include “disclosure or use of a trade secret without the consent of another.” 18 U.S.C. 1839(5) (emphasis in original). Accordingly, as Defendants allege that Syntel continues to use its Intellectual Property to directly compete with [defendants], the wrongful act continues to occur after the date of the enactment of DTSA.
(footnotes omitted).
DTSA Claims Based on Customer Lists and Proprietary Business Information
Although Congress was primarily concerned with theft of technical information when it passed the DTSA, courts also have applied the Act to protect competitive business information, including customer lists.
In a case decided in June 2012, the U.S. District Court for the Northern District of California granted a preliminary injunction preventing a defendant from using or disclosing customer information, including “customer-related reports, including an equipment inventory report, price quotations for prospective customers, and equipment proposals on which [plaintiff] was working.” Henry Schein, Inc. v. Cook, Case No. 16-cv-03166-JST (N.D. Cal. June 10, 2016). The court concluded that the plaintiff demonstrated a likelihood of success on the merits of misappropriation claims under the DTSA and California law, since “Customer information such as sales history and customer needs and preferences constitute trade secrets.”
Similarly, in Allstate Ins. Co. v. Rote, 2016 U.S. Dist. LEXIS 104374 (D. Or. Aug. 7, 2016), the court granted a preliminary injunction barring an insurance representative from using customer information, including names, addresses, and policy information, in a new competing business. The court found that such customer information was likely to be protectable as trade secret information under both the DTSA and Oregon Uniform Trade Secret Act, Or. Rev. Stat. § (O.R.S.) 646.461.
