Well, that didn’t take long! Not even a full year after President Obama signed the Defend Trade Secrets Act into law on May 11, 2016, Judge Edward G. Smith of the United States District Court for the Eastern District of Pennsylvania entered judgment for plaintiff on the first DTSA claim to be litigated to a jury verdict.
To be fair, the case was already in progress when DTSA became law, so plaintiff Dalmatia Import Group, Inc. amended its complaint to add the claim to its existing state law trade secret claims. The jury awarded Dalmatia $500,000 on both its federal and state trade secret misappropriation claims.
That’s when things got interesting. Defendants argued that because the jury was never instructed on the differences between the federal and state statutes – most importantly that damages were not available under the federal statute prior to its May 2016 enactment – the court should decline to enter judgment on a verdict that did not clearly apportion damages between the state and federal claims.
Ultimately, the court sided with the plaintiff. But the dispute raised an interesting question: Now that both federal and state claims are available in most jurisdictions, can you and should you plead both? In California, where I practice, the answer is not all that straightforward.
Here are three key issues to consider:
- When did misappropriation take place?
Both statutes have three-year statutes of limitations, which begin running from the point when misappropriation is or should have been discovered.However, a claim under DTSA is available only for post-enactment conduct. Courts have interpreted that to mean that use of the misappropriated information must have taken place after enactment, even if improper acquisition took place before.
Therefore, those pleading DTSA should consider when the acquisition, disclosure, or use of the trade secret information in question took place. If most of the damages occurred prior to DTSA enactment, the new statute may not be available.
- Can plaintiff bring other common law or statutory claims on the same facts?
The answer to this is unclear. DTSA explicitly disclaims preemption of state law claims but limits that preemption provision to “trade secret misappropriation” claims by language of the statute. Some courts have interpreted that to mean that DTSA does not preempt any state law claims. In California, however, the state statute preempts all other claims based on the same nucleus of operative facts.What happens now under the DTSA regime? State law cannot preempt a federal statute. To be on the safe side, plaintiffs should still factually distinguish their other claims from trade secret misappropriation, but ultimately courts need to clarify this issue.
- How quickly do you need what you need?
Before merits discovery can begin on a CUTSA claim, plaintiffs are required to provide a detailed disclosure of specific trade secrets alleged to have been taken. If that disclosure is at all ambiguous, experience shows that defendants respond with motions for clarification, which result in a delay in merits discovery. Because a similar disclosure is not required under DTSA, speedier merits discovery might be possible.On the other hand, for plaintiffs who know what was taken and want to compel its immediate return, DTSA allows for ex parte seizure “of property necessary to prevent the propagation or dissemination of the trade secret,” which is not available under CUTSA. So far, this remedy appears to have been awarded only once, where a defendant demonstrated the intent to continue misusing the misappropriated information despite the Court’s previous TRO. Plaintiffs armed with particularly egregious facts surrounding intended misappropriation may benefit from this relief.