Federal Court Denies Expedited Discovery In Defend Trade Secret Act Case

Trade-secret-misappropriation cases can move fast. Often, the plaintiff files a motion for temporary restraining order alongside its complaint. Sometimes, the plaintiff has enough evidence already to justify a TRO. Other times, the plaintiff needs to take discovery before the TRO hearing.

But the typical discovery deadlines in the rules of civil procedure are not well suited for these TRO proceedings. Thus, plaintiffs regularly seek expedited discovery. In my experience, the parties are often able to agree to an expedited discovery schedule, since defendants usually want to take discovery as well. But when the parties cannot agree, the court needs to get involved. A recent case out of the Middle District of Florida shows the importance of narrowly tailoring expedited discovery requests, particularly when asking a judge to permit this type of discovery.

In Digital Assurance Certification, LLC v. Pendolino, the plaintiff works with municipal bond issuers to comply with various SEC regulations. The plaintiff alleges that the defendant, a former employee, left to work for a competitor. And in his final week of work, according to the plaintiff, the defendant used a USB drive to access every document on the plaintiff’s shared drive. Thus, the plaintiff brought claims for violations of the Defend Trade Secret Act and the Florida Uniform Trade Secrets Act, among others, and filed a motion for a TRO.

In advance of the TRO hearing, the plaintiff filed a motion for expedited discovery. The court denied the motion. A copy of the order can be downloaded below.

The court first set forth the standard for determining whether the plaintiff had demonstrated good cause for expedited discovery:

Factors the Court considers in deciding whether a party has shown good cause include: (1) whether a motion for preliminary injunction is pending; (2) the breadth of the requested discovery; (3) the reason(s) for requesting expedited discovery; (4) the burden on the opponent to comply with the request for discovery; and (5) how far in advance of the typical discovery process the request is made.

Here, the court focused on the second factor, the breadth of the plaintiff’s requests. The court took issue with the scope of the plaintiff’s requests, noting that “while these matters may be relevant to the issues raised in DAC’s complaint, they go far beyond what is needed for the hearing on the motion for a temporary restraining order.”

Take away: When bringing a motion for a TRO, the plaintiff’s lawyers need to figure out quickly whether the parties will be able to agree to an expedited discovery schedule. If not, the plaintiff needs to draft discovery requests that are laser focused on the issues relevant to the TRO hearing. In my experience, judges will allow this type of discovery, as long as the requests are reasonable. Conversely, judges will protect defendants from overbroad discovery.

Digital Assurance Certification, LLC v. Pendolino

Trump and Trade Secrets: Signs of Encourgagement?

I’ve written several times about how Donald Trump’s rhetoric suggesting radical foreign-policy changes could threaten US companies’ trade secrets. See here and here. In particular, I’ve been concerned about Trump’s aggressive stance towards China, including statements about upending the “One China” policy.

Now that we’re several weeks into Trump’s presidency, we are seeing signs that his foreign policy won’t be so radical after all.

This New York Times Article, titled Trump Foreign Policy Quickly Loses its Sharp Edge, explains:

As Mr. Trump begins to shape his foreign policy, he is proving to be less of a radical than either his campaign statements or his tempestuous early phone calls with foreign leaders would suggest.

The article discusses how Trump’s actions as president differ from his campaign statements, including his recent affirmation of the One China policy. It also talks about how Cabinet members like Secretary of State Rex Tillerson and Defense Secretary Jim Mattis have emerged as persuasive voices, advocating for a more stable approach to geopolitical issues.

This is encouraging. I have been very concerned that Trump’s volatile, unpredictable style, combined with his lack of experience, would strain the relationships between the US and countries like China that have a history of state-sponsored trade-secrets theft. For now, it seems like there are voices of reason within his administration who have Trump’s ear. But at this very early stage of Trump’s presidency, substantial uncertainty remains.

Note: This is not a political blog, and I am not commenting on the more controversial issues discussed in the NY Times article. Here, I am solely focused on how the Trump administration’s actions impact companies’ trade secrets.

Federal Court: No Heightened Pleading Standard Under the Defend Trade Secrets Act

As more plaintiffs bring claims under the shiny new Defend Trade Secrets Act, we continue to learn about how courts are interpreting this statute. On Tuesday, the District of New Jersey answered an open question: whether the statute, in conjunction with Twombly/Iqbal, requires a heightened pleading standard for misappropriation. In Chubb INA Holdings, Inc. v. Chang, the DNJ declined to apply such a standard. A copy of the opinion can be downloaded below.

In this case, Chubb sued its former employee and its competitor Endurance, alleging that the former employee worked with Endurance to solicit a large number of employees from Chubb’s real estate and hospitality division. The goal was to hire enough Chubb employees to create a “turnkey” operation for Endurance. In the process, Chubb alleges, the former employees took Chubb’s confidential information. Chubb sued for, among other things, violations of the Defend Trade Secrets Act.

The defendants moved to dismiss, arguing that Chubb did not offer sufficient allegations of actual misappropriation, as opposed to inevitable disclosure. In denying this motion, the court found that Chubb alleged “more than the mere possibility of misconduct,” citing to Ashcroft v. Iqbal. The court also focused on the pleading standard:

Plaintiffs “need not make out specific allegations as to exactly how Defendants used or disclosed Plaintiff[s’] trade secrets; there is no heightened pleading standard for a misappropriation claim, and Plaintiff[s are] entitled to seek discovery to support [their] allegations setting forth a prima facie claim.”

The court was quoting from a case interpreting a New Jersey state-law claim for trade-secrets misappropriation.

This is obviously a plaintiff-friendly interpretation of the statute. It allows plaintiffs to plead misappropriation more generally, and then obtain discovery to sharpen the details.

Interestingly, the court’s approach here—relying on reasoning from a court in its state interpreting that state’s trade-secrets law—could result in state-by-state differences in how the DTSA is interpreted.

Chubb v. Chang MTD Order

The New Protecting Trade Secrets

The world is changing, and so is this blog. Some of these changes are visual — you can see our new site design. But more importantly, there will be some substantive changes as well.

This blog is not designed to be political. It exists to provide insight, advice, and timely legal updates to those interested in trade secrets and protecting proprietary information. But we’ve arrived at a place where this blog’s purpose has intersected with the political world.

I believe President Trump’s actions have put American companies’ trade secrets at risk. I’ve written about that several times, including here and here. I am going to continue to write about how the new administration’s actions affect companies looking to protect their proprietary information, for better or worse. But understand: this is not a Republican vs. Democrat issue. Here, I am concerned only with how the President is (or hopefully isn’t) a threat to your trade secrets.

And I will, of course, continue my posts about recent caselaw, trade secrets in the news, and general advice.

I welcome any feedback about the new Protecting Trade Secrets.

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