The Difficulties in Obtaining Relief Under the Defend Trade Secrets Act of 2016

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The Defend Trade Secrets Act of 2016 (“DTSA”) provides a new tool in the form of an ex parte seizure for businesses and individuals to safeguard their trade secrets after misappropriation has occurred. Unfortunately, many trade secret owners have discovered that obtaining this form of relief is no easy task.

Why is There a New Trade Secret Law?

The DTSA was enacted in May 2016. The DTSA provides a federal resource for owners of trade secrets to have federal question jurisdiction over their trade secret issues. In simpler terms, the owners of trade secrets can now bring an action in federal court without meeting other jurisdictional requirements. An owner of a trade secret may bring a civil action if they believe they have been misappropriated against under this section of the DTSA if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

In order to bring an action under the DTSA, trade secret owners must satisfy the following requirements to prove that their information actually qualifies as a “trade secret:”

  • The information must be a secret (not generally known among, or readily ascertainable to, those that practice in the “art”);
  • The information must have commercial value because it is a secret (i.e. Coca-Cola recipe); and
  • The owner of the information must have taken reasonable steps to keep it secret (e.g. confidentiality agreements).

The DTSA now includes a remedy called an “ex parte seizure,” which can be used to immediately stop the misappropriation and re-claim a party’s trade secrets. However, the legal burden in getting this form of relief is quite steep.

Legal Requirements for Obtaining an Ex Parte Seizure

Under the DTSA, the court may, upon the filing of a motion for an ex parte seizure, in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the improper use or disclosure of trade secrets. The requirements for issuing the order are:

  • The court must find clearly from specific facts that:
    • There is no other remedy that would stop the party from complying, evading or avoiding the order;
    • There is an immediate and permanent injury likely to occur if the seizure is not ordered;
    • The harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered of granting the application and substantially outweighs the harm to any third parties who may be harmed by such seizure;
    • The applicant must then prove that the applicant is likely to succeed in showing that:
      • The misappropriated information is a trade secret, meeting the requirements for the information to be a trade secret (secret, value, and necessary steps);
      • The person that the seizure will be ordered against did in fact misappropriate the trade secret by improper means or conspired to use improper means to misappropriate the trade secret;
    • The person that the seizure will be ordered against has actual possession of the trade secret and any property to be seized;
    • The application describes with reasonable particularity the matter to be seized and, under reasonable circumstances, identifies the location of the matter to be seized;
    • The person(s) against whom seizure would be ordered, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person; and
    • The applicant has not publicized the requested seizure.[1]

While the DTSA has provided the new and potentially powerful tool of an ex parte seizure, there have not been many instances where this specific relief has been granted. The principal reason for the lack of illustrative cases is because a plaintiff must provide a court with substantial evidence which unequivocally demonstrates that a defendant misappropriated its trade secrets. The end result has been that aggrieved parties have found it very difficult to prove that “extraordinary circumstances” warrant the imposition of an ex parte seizure.[2]

Accordingly, there is a high legal burden for trade secret owners, and there is no clear guide as to how much factual support a request for an ex parte seizure is needed in order to obtain this specialized relief. Trade secret owners must therefore take all reasonable precautions at their disposal to protect their information, and, in the event the trade secrets are misappropriated, gather significant factual evidence to show that misappropriation has taken place before heading to Federal Court for protection.

[1] Defend Trade Secrets Act of 2016, S. 1890, 114th Cong. § 2 (2016).

[2] Parties seeking injunctive relief under state trade secret law face the same obstacles. See for example, Ecolab, Inc. v. Krasner, No. 2:16-CV-02679-APG-CWH, 2017 WL 736880 (D. Nev. Feb. 23, 2017), where the court denied plaintiff’s motion for preliminary injunction, holding that plaintiff did not provide any actual evidence that defendants misappropriated plaintiff’s trade secrets under the state law of Nevada.

 

Paxton Fleming is an intellectual property intern with Howard & Howard in Las Vegas, Nevada. She works hand-in-hand with the intellectual property group at Howard & Howard.

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