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The Defend Trade Secrets Act of 2016—A Solution in Search of a Problem?



The Defend Trade Secrets Act of 2016 became the law of the land on May 11, 2016. It was greeted with broad fanfare. Much was written about it, mostly by lawyers, with predictions of how this could change trade-secret litigation. But with nearly a year on the books, and after a close look at its effect, the new law reveals relatively little reported activity.

The substantive trade-secrets portions of the Act mimic the Uniform Trade Secrets Act that all but two states have on their books. So the absence of new substantive law under the Act is not surprising, and attention has focused on the two new parts of the Act—the drastic ex parte seizure order and the whistleblower-protection provisions. But there's not much to report there, either, as discussed below. The Act may end up being a solution in search of a problem.

Ex Parte Seizure Orders

Section 2 of the Act empowers a court to order that the U.S. Marshal seize, without any notice, a defendant's hardware, software, hard copies, and electronically stored information. It's a drastic remedy, leaving the defendant with no copies of what is seized. Perhaps that explains why the few courts that have been asked to issue such an order have refused to do so. These courts typically find that an existing remedy, such as a temporary restraining order under the Uniform Trade Secrets Act, suffices. (Indeed, Section 2 of the Act requires that the court find that the defendant would be unlikely to comply with a temporary restraining order before issuing a seizure order.) For an example of how a court issued a temporary restraining order and declined to issue a seizure order, see Jones Printing LLC v. Adams Lithographing Co., No. 1:16-cv-442‑HSM-CHS (E.D. Tenn. Nov. 3, 2016).

We've not seen any ex parte seizure orders under the Act in Oregon or Washington courts so far. Rather, we've just seen the Act used to bring claims in federal court that might otherwise be restricted to state courts. Getting federal jurisdiction is by far the most significant consequence of the Act—but how significant is that if the courts are not doing anything beyond resorting to the Uniform Trade Secrets Act?

Indeed, the only ex parte seizure order we've seen under the Act was severely limited. In Mission Capital Advisors LLC v. Romaka, No. 1:16-cv-05878 LLS (S.D.N.Y. July 29, 2016), the court ordered seizure of a single document, namely, a contacts list, requiring that the U.S. Marshal copy that list onto a storage medium and then delete it from the defendant's computer. Couldn't that relief have been ordered under the Uniform Trade Secrets Act?

Whistleblower Protection

Section 7 of the Act grants immunity to whistleblowers who disclose trade secrets to government officials or an attorney to report a violation of the law. The same section contains a requirement that an employer give notice of this right to immunity in any contract or agreement with the employee that governs use of the trade secret or other confidential information. But there are no teeth in the notice requirement. An employer that fails to give the notice loses only the right to seek punitive damages and attorney fees under the Act, but still retains the right to seek that same relief under the state Uniform Trade Secrets Act.

So far there's only one case dealing with whistleblower protection. In Unum Group v. Loftus, No. 4:16-CV-40154-TSH, 2016 WL 7115967 (D. Mass. Dec. 6, 2016), a former employee sued under the Act sought to avoid a preliminary injunction by alleging that he had immunity under the Act. The court rejected this defense because it was too vague. The former employee had not specified the allegedly unlawful activities that he was whistleblowing about, or filed a lawsuit based on the documents that he had taken. Nor had he shown that everything he had removed was for the purpose of the whistleblowing. In allowing the preliminary injunction, the court showed that establishing whistleblower immunity requires specific proof, not general allegations. This may mean that the "immunity" under the Act is illusory, because the person seeking immunity from a lawsuit has to participate in the lawsuit at a level of detail involving evidentiary proof. How valuable is immunity from participating in litigation if you have to fight an evidentiary battle in court to get the immunity?

We'll continue to monitor what happens under the Act, but at least so far, businesses should not consider it to be the earthshaking development that so many predicted when it was passed. The most significant consequence so far is the ability to sue in federal court. That doesn't give businesses an excuse to avoid protecting their trade secrets. It just means that maybe the laws already on the books before the Act are all one needs.

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