Continuing our annual tradition, we present the top developments/headlines for 2017/2018 in trade secret, computer fraud, and non-compete law.
Just two years after its enactment, the Defend Trade Secrets Act (“DTSA”) continues to be one of the most significant and closely followed developments in trade secret law. The statute provides for a federal civil cause of action for trade secret theft, protections for whistleblowers, and new remedies (e.g., ex parte seizure of property), that were not previously available under state trade secret laws.
The ex parte seizure provision of the DTSA was one of the most controversial provisions of the statute during its drafting. The provision allows a trade secret holder to request, without notice to the alleged wrongdoer, that a district judge order federal law enforcement officials to seize property to prevent the propagation or dissemination of trade secrets. Opponents of the DTSA argued that the ex parte seizure provision would open the door to abuse by purported “trade secret litigation trolls” and increase litigation costs. The cases to date involving the seizure provision suggest that those early concerns may not materialize.
A rising development with the DTSA concerns its application to misappropriation that occurs both before and after the statute’s May 11, 2016, effective date. Federal district courts in multiple jurisdictions have allowed plaintiffs to proceed with DTSA claims, at least partially, when the plaintiffs can sufficiently allege that any wrongful misappropriation occurred after the date of the enactment of the DTSA. See, e.g., IA Technologies, Inc. v. ASUS Computer International, No. 14-CV-03586-BLF, 2017 WL 491172 (N.D. Cal. Feb. 7, 2017) (allowing plaintiff to amend complaint to add DTSA claim after discovery revealed alleged continued misappropriation); but see Avago Techs. United States Inc. v. NanoPrecision Products, No. 16-cv-03737, 2017 WL 412524 (N.D. Cal. Jan. 31, 2017) (dismissing DTSA claim because alleged trade secrets were disclosed before the DTSA came into effect).
While the language of the DTSA appears to bar or significantly limit the inevitable disclosure doctrine, some federal district courts have nonetheless used the doctrine as grounds for injunctions. See, e.g., Fres-co Systems USA, Inc. v. Hawkins, 2017 WL 2376568 (3rd Cir. June 1, 2017) (“Given the substantial overlap (if not identity) between Hawkins’s work for Fres-co and his intended work for Transcontinental—same role, same industry, and same geographic region—the District Court was well within its discretion to conclude Hawkins would likely use his confidential knowledge to Fres-co’s detriment.”); Molon Motor and Coil Corp. v. Nidec Motor Corp., No. 16 C 03545 (N.D. Ill. May 11, 2017) (“allegations on the direct competition between the parties, as well as the allegations on the employment breadth and similarity of Desai’s quality control work at the two companies, are enough to trigger the circumstantial inference that the trade secrets inevitably would be disclosed by Desai to Nidec.”)
The DTSA’s whistleblower immunity provision, which protects individuals from criminal or civil liability for disclosing a trade secret if certain conditions are met, continues to be largely untested.
We anticipate cases asserting claims under the DTSA will continue to be a hot trend and closely followed in 2018. For further information about the DTSA, please see our desktop reference: “The Defend Trade Secrets Act: What Employers Should Know Now.”
2. Other Notable Trade Secret CasesThe Waymo v. Uber (N.D. Cal.) case was one of the most closely watched trade secret cases last year. The case involved a former Waymo employee who allegedly misappropriated trade secrets concerning self-driving car technology, which Waymo alleged was worth over $2 billion. The case involved disputes over a wide array of issues, such as trade secret preemption, the attorney-client privilege and Fifth Amendment, and the scope of injunctive relief (and non-competes) in California. The case reportedly settled mid-trial in February 2018, which gave Waymo/Google a .34 percent equity stake (approx. $245M) in Uber.
The Ninth Circuit in U.S. v. Liew held that it was not plain error for the district court not to instruct the jury that disclosure “‘to even a single recipient who is not legally bound to maintain [a trade secret’s] secrecy’ destroys trade secret protection.” As a result, the Ninth Circuit upheld criminal convictions under the (pre-Defend Trade Secrets Act) Economic Espionage Act (“EEA”) for trade secret misappropriation despite a third-party competitor (who was not bound by any confidentiality obligations) acquiring the trade secret.
The Liew case is significant because it illustrates one of the DTSA’s substantial changes to the EEA–the definition of a trade secret. Before the DTSA, trade secrets were defined under the EEA to include information that was subject to reasonable secrecy measures and “derive[d] independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.” This case also...
