Does California Code of Civil Procedure 2019.210 Apply to the Defend Trade Secrets Act?

Trade secret litigators in California are familiar with California Code of Civil Procedure section 2019.210. That section requires plaintiffs to identify their alleged trade secrets with “reasonable particularity.” Critically, the section requires that plaintiffs do so “before commencing discovery relating to the trade secret.” Section 2019.210 has long been an important weapon in the arsenal of lawyers defending against claims of trade secret misappropriation.

The new Defend Trade Secrets Act of 2016 (DTSA; amending 18 U.S.C. §§ 1832–1839), by contrast, contains no such special requirement that plaintiffs identify their trade secrets.

On its face, this would seem to be a strong incentive for plaintiffs to sue under the DTSA in federal court instead of suing in California state court under California’s Uniform Trade Secret Act.

On the other hand, before the DTSA became law, some federal courts held that they were required to apply California’s section 2019.210 to trade secret claims. And some federal courts have imposed requirements analogous to section 2019.210 – that is, requiring plaintiffs to identify the alleged trade secrets with particularity – by invoking Federal Rule of Procedure 26, regardless of whether section 2019.210 technically applies.

It remains to be seen whether federal courts in California addressing claims under the DTSA will impose the familiar requirements of section 2019.210. Meanwhile, trade secret plaintiffs in California should strongly consider bringing their claims in federal court and invoking the DTSA, while trade secret defendants in California (or “plaintiffs” seeking declarations of non-misappropriation) should think hard before filing that notice of removal to federal court.

Potential Impact of the DTSA: Amending your Confidentiality and Proprietary Information Agreements

On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 into law, effective immediately (DTSA; Amending 18 U.S.C. §§ 1832–1839).

The DTSA creates a federal cause of action for trade secret misappropriation whereby aggrieved employers may now seek injunctive relief (including civil seizure orders), compensatory damages, exemplary damages, and attorneys’ fees arising from a party’s willful and malicious misappropriation of trade secrets in federal court.

The DTSA also carves out an exception to its application for whistleblowers. Specifically, immunity is provided to a worker for any confidential disclosures of an employer’s trade secrets that were made to the government or in a court filing made under seal. The workers covered by the foregoing immunity include both employees and independent contractors. In order to ensure that workers are properly notified of the foregoing exception, the government is requiring employers do so in any agreement or policy entered into with their workers that governs the use of a trade secret or other confidential information. An employer’s failure to comply with the foregoing notice requirement will result in a forfeiture of certain remedies afforded to the employer under the DTSA and a potential complete forfeiture of any contractual rights the employer may have arising from any agreement or policy which fails to contain the requisite notice.

In light of the foregoing notice requirements and in order to ensure compliance with the DTSA, employers should incorporate the immunity notice into their relevant employment agreements, services agreements, and policies, and/or implement a new “Reporting Policy” that specifically sets forth the immunity notice and references any agreement or policy affected by the same.

 

President Signs the Defend Trade Secrets Act of 2016

Obama

By The White House [Public domain], via Wikimedia Commons

As we reported over the last few weeks, the Defend Trade Secrets Act of 2016 (DTSA) was close to becoming the first civil, federal law designed to provide a remedy for the theft of trade secrets. Yesterday, as expected, President Obama signed the DTSA into law. What does this mean for companies with valuable trade secrets to protect, and how will the DTSA impact trade secret law?

The DTSA creates a private, civil cause of action that allows the owner of a stolen trade secret to bring suit in federal court, as long as the trade secret is related to a product or service used or intended to be used in interstate or foreign commerce. President Obama and Congress have emphasized the international aspect of the DTSA, speaking about the United States’ place in the global economy and foreign threats to American businesses from the theft of trade secrets. But given that the DTSA may be used whenever the trade secret at issue relates to a product or service in interstate commerce, this new law may end up being used most often by Americans suing other Americans for misappropriation that occurred in the United States.

The DTSA provides an easy way for most trade secret owners to get into federal court. But this does not necessarily mean that trade secret litigation in federal court will drastically increase. Some trade secret owners already sue in federal court if diversity or supplemental jurisdiction exists. As for those trade secret owners who would be limited to state court if not for the DTSA, it’s hard to predict whether they will now bring their actions in federal court or choose to stay in state court.

On a related note, it also remains to be seen how extensively trade secret owners will use the DTSA. The DTSA explicitly states that it does not preempt state law, so it will exist alongside states’ current trade secret laws. Trade secret owners may prefer the predictability of state trade secret law, which has been interpreted and litigated for many years, rather than take a chance and test out the DTSA. Or they may choose to bring state and federal trade secret claims simultaneously.

However, one aspect of the DTSA that differs from state trade secret laws, and that may entice trade secret owners to bring their new actions in federal court under the DTSA, is its provision for seizure of the trade secret material without notice to the defendant. Trade secret owners who can establish, among other things, that extraordinary circumstances exist, other remedies (such as an injunction) would be inadequate, and immediate and irreparable injury will otherwise occur can obtain an order providing for the seizure of property necessary to prevent the dissemination of the misappropriated trade secret. In an effort to prevent abuse, though, a trade secret owner who obtains a seizure order will not be allowed to access or copy the seized trade secret material (which will remain in the custody of the court) until both parties have been heard in court.

The civil seizure provision under the Lanham Act has been used effectively to seize counterfeit goods and is a powerful remedy for trademark owners who are fighting the proliferation of counterfeits. The DTSA’s seizure provision has similarities to this provision of the Lanham Act and could be an important tool for trade secret owners who meet the stringent requirements for a civil seizure.

This seizure provision – more than access to federal court or substantive federal law protecting trade secrets – could be the most significant feature of the DTSA.

The Defend Trade Secrets Act of 2016

Update:

Just a couple of weeks ago, we reported that the Defend Trade Secrets Act of 2016 had been passed in the Senate by a vote of 87-0. The House passed the DTSA by a vote of 410-2 on April 27, 2016. Enactment of the DTSA is a near certainty now, as President Obama has previously expressed support for the bill and is expected to sign it.

Besides allowing access to federal courts for trade secret actions, will the DTSA have any significant effect on trade secret law and practice? We’ll provide our analysis and predictions in our next update on the DTSA.

 

The Defend Trade Secrets Act of 2016

Best Internet Concept of global business from concepts seriesStates have long provided protection for trade secrets, with most having enacted a version of the Uniform Trade Secrets Act (“UTSA”). The UTSA supplies a framework for imposing liability with respect to the misappropriation of trade secrets. Now, after several years of attempts, the federal government is close to enacting its own version of civil trade secret protection: the Defend Trade Secrets Act of 2016 (“DTSA”).

The DTSA was introduced in the Senate with three considerations in mind: 1) theft of trade secrets occurs globally, including in the United States; 2) theft of trade secrets harms companies and employees; and 3) the federal Economic Espionage Act of 1996 already provides for criminal sanctions for trade secret theft.

The DTSA would amend the federal criminal code to create a civil cause of action for misappropriation of trade secrets. Under the new law, a trade secret owner could seek relief for trade secret theft related to a product or service in interstate or foreign commerce by filing a civil action in federal court. Remedies established by the DTSA would include injunctive relief, damages, and a seizure order to prevent dissemination of the stolen trade secret. A five year statute of limitations from the date of discovery of the trade secret theft would provide a long time to file an action after the damage has been done.

The DTSA just passed the Senate by a vote of 87-0, so its success or failure now depends on the House. Stayed tuned for more if the DTSA is enacted.

Employees in Transit(ion): Why Employers Need to Understand the Zika Virus

Here at Trade Secrets and Transitions, we know that an employee in transition often means an employee in transit – from one office to another, or one city or state to another. When it’s one country to another, the transition may present different kinds of challenges. The latest new challenge for work-related international travel is the global health crisis engendered by the Zika virus. The spread of an infectious disease is understandably alarming, which makes it all-the-more important for employers to gather and disseminate sound and responsible public health information to their traveling employees, and to understand the employer’s and employees’ respective rights and obligations. Toward that end, we recently published Zika Virus: What It Does – and Does Not – Mean for U.S. Employers, a general overview of the virus, and Zika and Your Workplace Part Two: You and Your Pregnant Employees, focusing on the questions likely to arise when pregnant employees are scheduled to travel to Zika-affected countries. We encourage you to click on these links and to share this information with those in your organization who must be prepared to address these issues.

Determining Duration of Enforceable Non-Competes in California

desert-1116221_1920A topic has repeatedly come up over the years that I wanted to address – is an enforceable non-compete in California required to be reasonable in duration?  Surprisingly, the answer is “NO”. Assuming you are in a situation where you can properly obtain an agreement not to compete (see Bus. Prof. Code 16600-16602.5), the only time limitation that the California requires is “for so long as … [the business] is carried on”. This means that the non-compete runs with the business.  Nevertheless, the vast majority of non-competes prepared in California read something along the following lines: “the later of 5 years or 2 years after your employment ends” or words to that effect. The problem here is that 2 year tail, which is tied to employment is subject to scrutiny by a Court since non-competes “post-employment” do not fall into any of the narrow exceptions to California’s prohibition against non-competes. A better way to draft the non-compete would be to say that it runs for so long the purchased business is carried on, unless the person bound by the non-compete is terminated from employment, in which case it expires 2 years after the employment ends. There are many ways to deal with this issue, but the better approach is to give yourself the longest period unless some condition occurs that shortens the period.

Stay tuned – more to come (e.g., how to properly define the scope of the non-compete and how to avoid an otherwise enforceable non-compete if it is overbroad).

 

Not Quite Fun in the Sun: What Happens to Accrued Vacation Leave When the Employment Relationship Ends

Part Two: State-Specific Provisions and Employer Policies for Vacation Payout at the Conclusion of Employment

In states that allow “use-it-or-lose-it” vacation leave policies when employment ends, the details of your policy are key. This second installment of the two-part series on vacation leave payout explores the state-specific provisions for leave forfeiture, and the importance of an explicit vacation leave policy.

Remember the three departing employees from our first post, whom you employed in three different states subject to a “use-it-or-lose-it” policy that you thought applied across the board? Bob has left for greener pastures, Carla has been forced to hit the bricks for insubordinate behavior, and Dan is leaving on a jet plane to Fiji with his lottery jackpot, without giving notice. What will happen to their unused but accrued leave?   Continue Reading

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