Defend Trade Secrets Act Claims Demonstrate Evolving Legal Options for Employers

Author: Marta Moakley, XpertHR Legal Editor

June 2, 2017

The Defend Trade Secrets Act (DTSA) marked its first anniversary in May, and a number of claims have helped to outline both the law's scope and federal courts' willingness to apply the law's provisions. Employers may use the DTSA to protect against unauthorized disclosure of trade secrets and other confidential and proprietary business information.

The DTSA contains a number of remedies for employers at the federal court level, including an ex parte seizure that grants a federal agent the authority to seize misappropriated property without prior notice.

While no court has yet granted the ex parte seizure remedy, a federal court in California has considered it. In addition, a federal court in Illinois has ruled that the inevitable disclosure doctrine may be applicable under the DTSA.

Ex Parte Seizure

The closest that a federal court has come to granting an ex parte seizure is in an order issued by the US District Court for the Northern District of California in OOO Brunswick Rail Mgmt. v. Sultanov, No. 5:17-cv-00017-EJD (N.D.Cal. January 6, 2017), granting in part an employer's requests for protection under the Defend Trade Secrets Act (DTSA). Although the order stopped short of granting the full remedies available under the year-old DTSA, the law continues to be cited by employers seeking to preserve confidential and proprietary business information and trade secrets.

An employer alleged that former employees had misappropriated trade secrets by sending confidential documents to personal email accounts without authorization. The employees also engaged in communications with one of the employer's creditors (whom the employees were specifically prohibited from contacting). One of the employees also refused to return a company-issued mobile phone and laptop.

The employer asked for a number of remedies, including a seizure order for the electronic devices under the DTSA, and a more traditional seizure and preservation order under civil procedure rules, to ensure that evidence is not destroyed.

The court granted the employer's request that the companies that host the personal email accounts (Google and Rackspace) preserve the communications relevant to the litigation. (Although Google and Rackspace were not directly involved in the lawsuit, if they were to delete information in the former employees' accounts, then harm could be caused to the employer.)

Although the court declined to grant the employer's request for a seizure under the DTSA, the court did order, under general civil procedure rules, that the employee deliver company-issued devices to a court hearing. The court granted a temporary restraining order (TRO), restraining and enjoining the employees from accessing or modifying company-issued devices.

In addition, the court also ordered the former employees to comply with applicable employment agreements, confidentiality agreements, IT policies, or fiduciary duties, duties of loyalty and other obligations that they have to their former employer.

Inevitable Disclosure

In Molon Motor and Coil Corp. v. Nidec Motor Corp., No. 16 C 03545 (N.D. Ill. May 11, 2017), a federal court applied the common law (or court-made law) inevitable disclosure doctrine in a DTSA case. Often, common law claims give way to statutory claims once a law is enacted. However, the Molon Motor case may show that the common law doctrine remains available under the DTSA.

The employer alleged that a former employee, who was subject to a restrictive covenant banning the unauthorized use of company data, had copied dozens of files with confidential and proprietary business information. The employer alleged that the employee then took the files to his new employer (a direct competitor of the former employer), where he would work in a similar position.

On a motion to dismiss the claim, the court agreed with the former employer that it could demonstrate that the employee's new employment with a competitor would inevitably lead him to rely on the former employer's trade secrets. While the former employer did not have to prove its case at this stage of the litigation, its arguments show that the inevitable disclosure doctrine may be used in a DTSA litigation to move on to the next phase of the case.

State Remedies

Employers should continue to request state-specific remedies under states' Uniform Trade Secrets Acts and available common law claims in litigation. The DTSA provides a federal claim for employers, but does not preempt these time-tested tools for safeguarding employer's trade secrets.