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Defend Trade Secrets Act: What does it mean in the real world -- and what do lawyers do now?

Summary: By now, we have seen numerous articles explaining in detail the general similarities and minor differences between the Uniform Trade Secrets Act (“UTSA”) as ...

By now, we have seen numerous articles explaining in detail the general similarities and minor differences between the Uniform Trade Secrets Act ("UTSA") as adopted as state law in 48 states and the provisions of the newly enacted federal Defend Trade Secrets Act ("DTSA"). We have all learned that this law creates a new federal cause of action for trade secret misappropriation.

Open for the first time, beyond cases invoking federal diversity jurisdiction or ancillary claims to other federal claims, are the federal courts for trade secrets litigation, applying newly enacted and evolving federal law to what in the past have been claims for trade secret misappropriation governed exclusively by state law.

This newly created opportunity to pursue claims in federal court under federal law, in addition to traditional state court venues, leads to some very practical questions to be faced by practitioners, both in pursuing the claims on behalf of trade secrets owners and defending against them by filing preemptive declaratory relief actions.

Here you will find a summary of some of the issues surrounding the major decision of determining where to file such claims, federal or state court, and whether to assert federal and/or state law claims for misappropriation.

Some of the considerations of forum and law selection involve traditional ones as between federal and state court generally. However, because of the somewhat unique circumstance of a long history of the development of the trade secrets law in the state court systems under state law, the impact of that body of law upon the development of federal claims may also drive the decision to pursue one forum versus the other.

Factors affected by the DTSA

1. Procedural considerations

Depending on the state court jurisdiction, the prerequisites to a favorable jury verdict may obviously differ as to between federal and state court. While federal courts require unanimity of all the jurors, generally speaking with at least six jurors, state courts vary.

For example, in the California state court system, a favorable plaintiff's or defendant's verdict may be obtained by a ninth to three vote. Potentially, that has implications in litigating these claims.

Another example: many trade secret misappropriation claims involve employee mobility issues, specifically, a former employee's decision to bring his or her skills, knowledge and potentially trade secret information of a prior employer to a new one. Jurors often have very strong feelings concerning this issue, which could dramatically impact their view of the evidence, even if their decisions are governed by appropriate jury instructions.

The ability of dissenting juror to hold out and frustrate any verdict is heightened in a federal system where unanimity is required, as opposed to a state system where less than a unanimous verdict is necessary. Avoiding this deadlock by minority of even one juror in federal court, may be viewed as an advantage to a plaintiff which may elect to proceed in state court, where such unanimity is not necessary.

Other federal versus state court distinctions can drive the decision as to where to pursue litigation. For example, discovery limitations (i.e. number of depositions, number of interrogatories) differ between the two systems. Limitations on the number and length of depositions also vary as between federal and state courts.

While it is difficult to generalize that pursuing federal claims in the federal courts will necessarily be more extensive and expensive, even if that is the case, the benefit of obtaining through focused discovery and extensive pretrial procedures more information about the adversary's claims may be viewed as a benefit, as opposed to the less constrained litigation that may exist in various state courts.

Further, the availability of temporary restraining orders, preliminary or permanent injunctive relief may be governed by different proof requirements as between state and federal law. Often times, emerging issues requiring immediate attention through injunctive relief are the primary focus of trade secrets cases and success or failure in obtaining such relief can be case dispositive.

2. Legal considerations

Familiarity with the adjudication of trade secrets claims up to and through jury trial prevalent in many of the larger state court systems, along with a fully developed body of state law governing these claims, may provide some additional certainty with respect to predictable outcomes as opposed to the new litigation frontiers of federal court and federal law.

Additionally, there are critical principles surrounding state law trade secrets claims that are grounded in public policy considerations that impact both the litigation and trial of these claims in state court and potentially their outcomes.

An important example of this circumstance is the general public policy of the State of California that favors employee mobility. This principle is enshrined in California Supreme Court and appellate opinions and may affect the distinction between information that an employee can lawfully transfer from his or her prior employer to a new employment, versus proprietary information that a court or jury determines rises to the level of protectable trade secrets.

Federal courts applying the DTSA will not be, depending on one's perspective, hobbled or constrained by such public policy considerations and are free to develop, through thoughtful consideration of a nascent body of federal law, variations on this California public policy theme.

The slight difference in the statutory language as between the DTSA and various state versions of the UTSA may become important in particular trade secrets cases. For example, the DTSA, as in most states that have adopted the UTSA, requires -- through their definition of trade secrets -- that the plaintiff must establish that information in question derives independent economic value for not being generally known or not readily ascertainable through proper means.

In California however, when the UTSA was adopted, this readily ascertainable language was dropped from the definition of a trade secret. The plaintiff in a trade secrets case brought under California law does not have the burden of proving, under California law, that the information is not readily ascertainable through proper means.

Rather, in California whether information is readily ascertainable by proper means is generally viewed as an affirmative defense to misappropriation, with the defendant required to prove that it could have readily ascertained the information in question by proper means even if it did not do so. This distinction between the federal statute and the unique aspect of the California version of the UTSA could play an important role in cases involving for example customer lists or the development and components of a manufacturers process, where often the dispute centers around whether the list or process allegedly misappropriated by a defendant could have been developed by proper means within the appropriate time period in question.

With new DTSA filings now commencing in federal courts, the evolution of federal law under the DTSA, its potential diversion from state trade secrets law and the manner in which these claims are handled will all be of great interest and instructive as to how litigators and their clients decide to proceed.

The outcome of these decisions will answer many of the questions as to where these claims should be filed, how they will be litigated and which forum and law will be viewed as providing the best opportunity for the most favorable outcome desired by the parties to the litigation.

Further reading:

Are they going to federalize trade secrets law?

The 3 types of trade secret misappropriation damages claims an expert can help prove

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Publication:Inside Counsel
Geographic Code:1U9CA
Date:Jun 23, 2016
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