Protecting the Assets: Defend Trade Secrets Act
POSTED ON February 16

Just about every business has secret knowledge that is valuable.  The secret could be a formula that is unique to one company, or it could be sales and marketing information (see Joshua David Mellberg, LLC, v. Will, 96 F. Supp. 3d 953 (D. Ariz. 2015)). Deciding what information will be made public is an important strategic decision.

While just about every U.S. jurisdiction has enacted the Uniform Trade Secrets Act, there is no federal law protecting trade secrets. But that might be about to change: two identical bills introduced in Congress—HR 3326 and S 1890—would enact the “Defend Trade Secrets Act of 2015 [DTSA].” The law would allow a federal civil lawsuit to protect trade secrets.

The DTSA would use the definitions in the criminal economic espionage law. That would make a trade secret “all forms and types of financial, business, scientific, technical, economic, or engineering information” if the owner of that information “has taken reasonable measures to keep [it] secret,” and if “the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.” See 18 U.S.C. § 1839. Actions for violation of such a secret would be brought in federal court.

Whether at the state or federal level, trade secret litigation raises a conundrum: how can a company bring an action to protect a trade secret without revealing the secret? The practice is to obtain a protective order from the court. The DTSA does not specifically authorize protective orders, but such orders are already governed by the Federal Rules. Rule 26(c) of the Federal Rules of Civil Procedure allows a person from whom discovery is sought to move for a protective order “requiring that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a specified way.” The party who wants a protective order has the burden of proving the need for an order, and must “go through document by document and establish that exhibits at issue constitute trade secrets or confidential commercial information.” Forst v. SmithKline Beecham Corp., 602 F. Supp. 2d 960, 973 (E.D. Wis. 2009).

The DTSA would give courts some new and controversial powers  that would go beyond the existing protective order. Section 2 would authorize a court to issue an ex parte order “providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” The court would be required to schedule a hearing on its order within a week of issuing it.

The controversy stems from the argument that it would be too easy for a party to get an order and effectively shut down another party’s business for a week. Securing an ex parte order would not, however, be automatic. A party seeking such an order would be required to show that they are likely to succeed on the merits of the case, and prove that the other party misappropriated or conspired to misappropriate a trade secret by improper means. Further requirements: the requested order must not have been publicized, and the applicant would be responsible to “provide the security determined adequate by the court for the payment of the damages that any person may be entitled to recover as a result of a wrongful or excessive seizure or wrongful or excessive attempted seizure.” Finally, the applicant would only have restricted access to the seized material.

Our country’s legal system and history makes the idea of an ex parte seizure concerning. As of January 28th, the committee on S 1890 recommended the bill be considered further.  Stay tuned, if the DTSA were enacted, corporations, litigators and eDiscovery professionals will need to carefully watch how courts would wield this new power.

About the Author Chris

Author Avatar Christine Chalstrom is the Founder, CEO, and President of Shepherd Data Services, Trustee, Mitchell Hamline Law School and Adviser, Center for Law and Business. She has spoken widely on the Amendments to the Federal Rules of Civil Procedures, Digital Forensics, and eDiscovery best practices. Her credits include presentations to the American Bar Association, Association of Certified e-Discovery Specialists (ACEDS), Corporate Counsel Institute, MN Association of Corporate Counsel, MN Association of Litigation Support Professionals, MN CLE, Mitchell Hamline School of Law, Upper Midwest Employment Law Institute. She is an attorney, programmer, and forensic examiner.