United States: Practice Tips For The Trade Secret Holder: Preparing A Complaint Under The Defend Trade Secrets Act

Trade secrets can provide great economic value in certain technological and business realms, making effective measures for preventing theft critically important. But what happen when, despite these measures, trade secret misappropriation occurs? Since May 11, 2016, trade secret holders have been able to pursue remedies such as restraining orders and injunctions in federal courts under the Defend Trade Secrets Act (DTSA). This article assesses how courts have evaluated the sufficiency of allegations in complaints filed under the DTSA and proposes steps to avoid unnecessary pitfalls.

Pleading Standard

Complaints filed under the DTSA must meet the pleading standards of Rule 8 of the Federal Rules of Civil Procedure (FRCP). While Rule 8 pleadings are considerably less detailed than those under Rule 9 (which requires that allegations of fraud or mistake be pled with particularity), it nonetheless requires that the complaint set forth a basis for relief that is plausible, not merely conceivable. See Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570 (2007). At a minimum, that means all elements of a claim must be addressed in the complaint.

Missing Elements

Under the DTSA, courts have held that trade secret holders failed to meet this standard where they did not address each requirement for the existence of a trade secret under the DTSA. For context, the DTSA defines a trade secret as "all forms and types of financial, business, scientific, technical, economic, or engineering information," provided that (a) the owner has taken reasonable measures to keep such information secret, and (b) the information derives independent economic value from not being generally known to or readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of the information. 18 U.S.C. § 1839(3). In brief, alleging the existence of a trade secret requires setting forth information regarding secrecy measures, economic value, and lack of general knowledge/ascertainability. By way of example, one court granted a motion to dismiss, finding the complaint "entirely devoid of any allegations of how [Plaintiff] protected the information in question from dissemination." Raben Tire Co., LLC v. McFarland, 5:16-CV-00141-TBR, 2017 WL 741569, at *2 (W.D. Ky. Feb. 24, 2017); see also M.C. Dean, Inc. v. City of Miami Beach, Fla., 16-21731-CIV-Altonaga, 2016 WL 4179807, at *7 (Aug. 8, 2016) (dismissing claims based on failure to allege reasonable steps were taken to maintain secrecy and that the alleged misappropriator had a duty to maintain secrecy). Of note, the DTSA requires that trade secrets relate to a product or service used or intended for use in interstate or foreign commerce, and failing to allege that this requirement is met has also provided grounds for dismissal. Hydrogen Master Rights, Ltd. v. Weston, CV 16-474-RGA, 2017 WL 78582, at *10 (D. Del. Jan. 9, 2017).

Timing of Wrongful Acts

Another common pitfall involves failing to allege acts of continuing misappropriation that occurred after DTSA came into effect, where the initial misappropriation occurred or began before May 11, 2016. See id. (finding that "a conclusory allegation of continuing use and disclosure" did not suffice); see also Avago Techs. U.S. Inc. v. Nanoprecision Products, Inc., 16-CV-03737-JCS, 2017 WL 412524, at *9 (N.D. Cal. Jan. 31, 2017); Champions League, Inc. v. Woodard, 16 CIV. 2514 (RMB), 2016 WL 8193292, at **5-6 (S.D.N.Y. Dec. 15, 2016).

Trade Secret Description

While missing elements and insufficiently pled continuing misappropriation have resulted in a significant number of dismissals, allegations relating to the substance of the trade secrets at issue have fared better. Here, courts have determined that the complaint must describe the trade secrets at issue sufficiently to "put the defense on notice as to the nature of the claim." See, e.g., Aggreko, LLC v. Barreto, 1:16-CV-353, 2017 WL 963170, at *2 (D.N.D. Mar. 13, 2017). Notably, trade secrets "'need not be disclosed in detail in a complaint alleging misappropriation for the simple reason that such a requirement would result in public disclosure of the purported trade secrets.'" Mission Measurement Corp. v. Blackbaud, Inc., 216 F. Supp. 3d 915, 921 (N.D. Ill. 2016) (quoting Covenant Aviation Sec., LLC v. Berry, 15 F. Supp. 3d 813, 818 (N.D. Ill. 2014)).

Curing Deficiencies

Courts have both invited and allowed amendments to correct deficiencies in the original complaint in view of facts learned through discovery. See Syntel Sterling Best Shores Mauritius Ltd. v. Trizetto Group, Inc., 15CV211LGSRLE, 2016 WL 5338550, at *2 (S.D.N.Y. Sept. 23, 2016). One court provided a roadmap for re-asserting a DTSA claim successfully, should basis for one come to light during discovery, highlighting the need for specificity regarding allegations of misconduct and the dates of misappropriation. VIA Techs., Inc. v. ASUS Computer Intl., 14-CV-03586-BLF, 2017 WL 491172 (N.D. Cal. Feb. 7, 2017).

Tips for Asserting a DTSA Claim

  • Every element: allege facts that address the definitional requirements of 18 U.S.C. § 1839 and the interstate commerce requirement of § 1836;
  • Dates: include dates and actions sufficient to show misappropriation/continuing misappropriation on or after May 11, 2016;
  • Trade secrets: provide sufficient detail to put the defense on notice while avoiding public disclosure of confidential information; and
  • Amendments: if insufficient information is available at the outset, conduct targeted discovery and, if appropriate, seek to amend.

Originally published by Inside Counsel. © 2017 ALM Media Properties, LLC, the June 14, 2017 edition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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