Locke Lord QuickStudy: Creating Federal Jurisdiction for Trade Secrets Litigation

Locke Lord LLP
April 5, 2016
Federal courts around the country will be granted broad original jurisdiction over virtually all trade secrets litigation if the U.S. House of Representatives passes the Defend Trade Secrets Act of 2015 (DTSA) in the form already unanimously approved by the U.S. Senate on April 4, 2016. The White House has already stated its strong support for the bill. The bipartisan legislation, which also enjoys support from the business community, would permit civil actions concerning the misappropriation of trade secrets to be brought in U.S. District Courts around the country, as long as the products or services at issue are “used in, or intended for use in, interstate or foreign commerce.”  The DTSA would also create a new civil seizure remedy, which would be available on an ex parte basis in “extraordinary circumstances.”

Under current jurisprudence, most trade secrets litigation occurs in state courts of general jurisdiction, except for instances in which a plaintiff is able to establish diversity jurisdiction as an independent basis for filing in Federal court.  In 48 states, as well as in other districts and territories, most trade secrets claims are currently governed by various versions of the Uniform Trade Secrets Act (UTSA), as adopted by state legislatures. The UTSA defines what constitutes a trade secret in now-familiar terms, and defines what constitutes misappropriation.   

In the meantime, only certain limited provisions of the U.S. Code, enacted as part of the Economic Espionage Act of 1996, and codified at 18 U.S.C. § 1831, et seq., currently address issues related to trade secrets.  In large measure, those sections of Federal law provide criminal penalties for certain acts of economic espionage and for theft of trade secrets. Those provisions of the Economic Espionage Act provide for criminal forfeiture penalties, and permit the Attorney General to seek civil injunctive relief where appropriate, but otherwise do not provide for private civil remedies.

The proposed DTSA passed by the Senate, and on its way to the House, would change that landscape by creating original (but not exclusive) Federal jurisdiction over all civil claims of misappropriation of trade secrets, as long as there is a sufficient link to interstate or foreign commerce. That link should not be hard to establish in most cases in today’s marketplace. The DTSA would permit Federal courts to award the same broad range of remedies currently available under the UTSA in most states, including injunctive relief against actual or threatened misappropriation, compensatory damages, exemplary damages, and attorneys’ fees. The DTSA employs definitions -- of a trade secret and of misappropriation -- that are substantially similar to those already employed in the UTSA in most states, but creates an entirely parallel track for seeking relief at the Federal level.

As proposed, the DTSA would also provide for a new civil seizure remedy that a plaintiff can seek in appropriate circumstances in order to protect the status quo and place the subject information or data under court control, without public disclosure, during the pendency of the action. Under the proposed language now being considered by the Senate, such a seizure order would be available if the plaintiff could satisfy the requirements typically associated with preliminary injunctive relief, and otherwise satisfy the court that “another form of equitable relief would be inadequate . . . because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order.”  Such relief would be made available on an ex parte basis in extraordinary circumstances.

In cases in which the court ordered such a seizure remedy, the court would take appropriate steps to maintain the confidentiality of the underlying information or data, as well as the confidentiality of the seizure order itself. The information would be held in the custody of the court pending further proceedings. The court would also have the power to appoint a Special Master to oversee the information and to isolate the subject trade secrets. In instances in which the seizure remedy was issued on an ex parte basis, the court would hold a hearing no later than seven (7) days after the entry of the order, unless otherwise agreed by the parties.  Service of the seizure order would be made by a “Federal law enforcement officer.”

But beyond the seizure remedy, the biggest impact of the DTSA would be the creation of general access to the U.S. District Courts, as a matter of Federal question jurisdiction, to address claims of misappropriation of trade secrets.  The Federal courts would have a broad range of authority to award all of the same kind of remedies now available in most state court litigation under the UTSA. In order to bring such an action in Federal court, a litigant would simply have to demonstrate that the action is “related to a product or service used in, or intended for use in, interstate or foreign commerce.”

Under language already in place in the U.S. Code, in 18 U.S.C. § 1838, nothing in the DTSA would supplant or preempt any other, pre-existing remedies available under state law. Instead, the DTSA, as proposed, would simply create an alternative jurisdictional basis to litigate in Federal court in a far greater range of cases than otherwise currently available to litigants. The unstated assumption appears to be that Federal courts would provide a more consistent and predictable forum for relief where interstate and particularly foreign business interests are at stake. The proposed legislation does cite to a growth in the theft of trade secrets in the United States and around the world, and to the need to protect American businesses. The White House has called the bill “a more uniform, reliable, and predictable way to protect . . . valuable trade secrets anywhere in the country.” 

Critics of the proposed DTSA who have filed objections with Congress have questioned the need for a parallel track of Federal jurisdiction in an area of law where existing state remedies, particularly under the UTSA, appear to be adequate and well-developed in legal circles. Conversely, organizations associated with manufacturing and other business interests, such as the National Association of Manufacturers, the U.S. Chamber of Commerce, and the National Alliance for Jobs and Innovation, have strongly urged members of Congress to enact the new legislation to protect the intellectual property and business interests of their constituencies.   

Action by the House is expected later this year, after which the White House has already stated its intent to sign the bill into law. We will continue to monitor the situation and assess its impact on our clients.