In my last post, I discussed the recently proposed, bipartisan Defend Trade Secrets Act that would create a federal cause of action for trade-secret misappropriation. I wrote favorably about the statute’s mechanism allowing a judge to enter an ex parte order to preserve evidence. Since then, I’ve discussed this provision with several people who have concerns about it. This post responds to these criticisms.
To start, I want to explain why this provision is so important. Trade-secret theft is overwhelmingly accomplished by electronic means, such as through email, downloading to portable media, or via remote access to IT systems. Companies suspecting trade-secret theft can often determine where and how the information was stolen. For example, forensic techniques can identify that certain documents were saved to a flash drive on a specific date.
The Defend Trade Secrets Act permits the company, armed with this information, to seek an order requiring seizure or preservation of the media/computer/etc to which the information was downloaded. As a result, critical evidence that could otherwise easily be destroyed would be preserved. Without a statutory provision specifically authorizing this remedy, most litigants find it very difficult to convince a judge to enter this type of order.
I’ve heard concerns about the risk that judges will improvidently grant ex parte seizure orders brought in bad faith by unscrupulous litigants, potentially causing significant unjustified damage to defendants. This risk, while real, is present any time a judge hears an ex parte motion for temporary restraining order. The overwhelming majority of judges are reluctant to enter an ex parte injunction unless absolutely necessary. And this statute contains requirements that make it materially more difficult to get a seizure order as compared to a TRO.
In particular, the Defend Trade Secrets Act borrows from the Trademark Act’s procedure for seizing goods containing counterfeit trademarks. These requirements go beyond the typical TRO prerequisites. For example, the movant must show evidence that the item to be seized will be in a certain location. The court must also take measures to protect the defendant from publicity regarding the seizure. Further, the order directing seizure remains sealed until the defendant has an opportunity to contest it at a hearing that must occur within 15 days of entering the ex parte order. And as a final example, the statute provides for damages, including punitive damages, if the defendant is damaged by the wrongful entry of a seizure order.
These protections go a long way to minimize the likelihood that orders are improperly entered. In the end, the benefit of avoiding destruction of evidence—which happens all too frequently—outweighs the risk of unwarranted orders, particularly given the statute’s protections.