Federal Court Addresses Defend Trade Secret Act Immunity

The Defend Trade Secrets Act, 18 U.S.C. 1030, et seq., provides immunity from liability for misappropriation of trade secrets in certain circumstances, namely if the disclosure:

(A) is made–

(i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and

(ii) solely for the purpose of reporting or investigating a suspected violation of law; or

(B)  is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

Since the DTSA was enacted in May 2016, there have not been many cases analyzing this portion of the statute. The Eastern District of Pennsylvania examined it in a recent opinion, Christian v. Lannett Co., Inc., E.D. Pa. Case No. 16-963 (the opinion can be downloaded below).

Christian is an unusual trade-secret case, as it started when the plaintiff asserted claims for employment discrimination. During discovery, the defendant learned that the plaintiff had retained a company laptop, which led to the plaintiff producing 22,000 pages of documents. Per the defendant, these contained trade secrets.

The defendant then filed a counterclaim under the DTSA, as well as other related claims, based on the plaintiff’s disclosure of trade secrets. But there was apparently no evidence of disclosure to anyone except the plaintiff’s lawyer, who only received the documents to produce them in the litigation.

The court concluded that “Plaintiff’s alleged disclosure was made to Plaintiff’s counsel pursuant to a discovery Order of this Court, within the context of a lawsuit regarding violations of Title VII, the ADA, and the FMLA,” and applied the immunity provision above to bar the DTSA claim.

The court did not specifically cite the immunity provision. And a strict application of that provision would seem to exclude the plaintiff from its protection, since the disclosure was not “solely for the purpose of reporting or investigating a suspected violation of law.” But the court’s decision is well within the spirit of the DTSA, which should not be used to prevent parties in litigation from communicating freely with, and providing discoverable documents to, their counsel.

Christian v Lannett

 

Another Federal Court: No Heightened Pleading Standard in Defend Trade Secret Act Cases

Previously, I wrote about a decision from the District of New Jersey that declined to apply a heightened pleading standard to Defend Trade Secret Act claims. Now, another federal court has reached the same conclusion. A copy of the opinion can be downloaded below.

In Aggreko, LLC v. Barreto, pending in the District of North Dakota, the plaintiff and one of the defendants, Elite Power, are competitors in the generator-renting industry. Defendant Barreto previously worked as Aggreko’s sales manager. Aggreko alleges that Barreto resigned under false pretenses, thereby hiding his intention to work for Elite Power. And on the way out, Barreto allegedly downloaded Aggreko’s trade secrets and confidential information. Aggreko sued Elite Power and Barreto for violations of the Defend Trade Secret Act, among other claims.

The defendants moved to dismiss, arguing that Aggreko failed to plead its misappropriation claims with sufficient particularity. The court rejected this argument:

All that is required at this stage of the proceedings is an allegation that Barreto misappropriated Aggreko’s trade secrets sufficient to put the defense on notice as to the nature of the claim. Aggreko has alleged Barreto wrongfully acquired its trade secrets and provided them to Elite Power. Aggreko describes its trade secrets as including customer lists and information regarding Aggreko’s operations, customers, business proposals, pricing strategy, client preference and history, and proprietary pricing models known only to Aggreko; a description which the Court finds is clearly adequate under Rule 8. The discovery process will provide the parties with the details relevant to the claims, most of which are known to Barreto.

In this case, it sounds like the plaintiff only offered high-level allegations of the trade secrets at issue. And those allegations survived a motion to dismiss. This, along with the case discussed in my prior post, should be encouraging to trade-secret plaintiffs who are leery of a possible heightened pleading standard in federal court.

Aggreko v. Barreto Order

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

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

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