The New York University Law Review recently published an article suggesting that the ex parte seizure provision of the Defend Trade Secrets Act (DTSA) would not survive due process scrutiny and therefore should be eliminated.
Of the hundreds of claims brought under the DTSA since it went into effect in May 2016, we are unaware of any cases where litigants have attacked its constitutionality, much less successfully. Although the note raises some due process concerns that are not unreasonable in theory, challenging the ex parte seizure provision on a constitutional basis likely would be ineffective in practice. Nor should the concerns expressed in the note require any legislative correction.
First, the note argues that the risk of error is much greater in ex parte seizure applications under the DTSA than in ex parte temporary restraining orders (TROs) under Federal Rule of Civil Procedure 65. The supposed increased risk of error is based on the fact-intensive nature of trade secret litigation, and the purported difficulty in deciding whether a trade secret exists without a counter-narrative.
But risk of error is inherent in all ex parte applications and does not render such hearings unconstitutional. Indeed, risk of error is one of several factors that courts are tasked with weighing when considering DTSA ex parte seizure applications.
Furthermore, if the ex parte seizure provision of the DTSA is unconstitutional because of the risk of error, Rule 65 also is unconstitutional by the same logic. The constitutionality of ex parte TROs, however, is long established. See, e.g., Carroll v. President & Comm’rs of Princess Anne, 393 U.S. 175, 180, 89 S. Ct. 347, 351, 21 L. Ed. 2d 325 (1968) (“There is a place in our jurisprudence for ex parte issuance, without notice, of temporary restraining orders of short duration.”); see also Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers Local No. 70 of Alameda Cty., 415 U.S. 423, 438–39 (1974) (noting the “stringent restrictions” already imposed by Rule 65 on the availability of ex parte TROs).
Second, the note argues that the physical seizure of computers, servers, or other data storage equipment increases the risk of catastrophic and cascading harm to defendants and third-party vendors. The increased risk of harm derives from the difficulty of isolating the allegedly misappropriated trade secret data from non-offending data, and the dependence on the “always-on” connectivity of modern, high-tech companies.
But the DTSA recognizes and accounts for the risk of harm to defendants and to third parties by imposing a number of requirements that must be met before a court may issue a seizure order. Most critically, the court must find that an order for injunctive relief under Rule 65 would be inadequate. This means that, properly implemented, an ex parte seizure under the DTSA already necessarily satisfies the constitutional protections inherent in Rule 65. The DTSA then augments the demanding Rule 65 standard by requiring a court to find that the defendant would “destroy, move, hide, or otherwise make such matter inaccessible to the court” if provided notice of the application, and that the applicant has not publicized the requested seizure.
Further constitutional protections are built into the DTSA; for example, a requesting party must provide a court-determined security for damages caused by wrongful and/or overbroad seizure applications before the court will issue a seizure order. The DTSA also provides a cause of action for victims of such wrongful or overbroad seizures to recover lost profits, costs, loss of good will, punitive damages, and attorneys’ fees.
Third, the note warns against the risk of “overzealous applications” and suggests that courts might grant ex parte seizures under the DTSA routinely and with increasing frequency.
This risk is overstated because the DTSA provides that courts may grant ex parte seizures “only in extraordinary circumstances” and only when a Rule 65 injunction is inadequate. And the 30-month history of the DTSA has disproved the note’s stated concern. The vast majority of DTSA cases seeking seizure have had the ex parte application denied because the plaintiff failed to show the requisite “extraordinary circumstances” and failed to show that a standard Rule 65 TRO would be ineffective. See, e.g., OOO Brunswick Rail Mgt. v. Sultanov, 2017 WL 67119 (N.D. Cal. Jan. 6, 2017) (“[T]he Court finds that seizure under the DTSA is unnecessary because the Court will order that [Defendant] must deliver the devices to the Court at the time of the hearing scheduled below, and in the meantime the devices may not be accessed or modified.”). Simply put, experience to date has not borne out the fear that the ex parte seizure provision will be overused.
As a practical matter, if your client is on the receiving end of an ex parte seizure application under the DTSA, defend your rights and property on a factual basis, but don’t waste space attacking the constitutionality of the provision itself.