United States: Report On Sedona Conference On Trade Secrets

On December 6-8, the inaugural Sedona Conference on trade secrets took place in Scottsdale, Arizona. The invitation-only conference brought together outside counsel, in-house counsel, and experts to have an in-depth discussion of developments in trade secrets law.

The conference provided us with some great insights into the issues on practitioners' and companies' minds. After a post-conference debrief, a few common notes emerged, and we have prepared a short summary of what we consider to be a few key takeaways. 

Increased importance of trade secrets

Trade secrets are only getting more important. In a post-Alice world, trade secrets are comprising a greater piece of companies' intellectual property pie. The Defend Trade Secrets Act ("DTSA") armed businesses with a new cause of action and a ticket to federal subject matter jurisdiction. By contrast, recent Supreme Court patent decisions have limited patentable subject matter and sharply curtailed available venues for patent litigation.

Trade secrets cases deserve local rules (at least in California)?

Most district courts have local rules specific to patent litigation, and there was a lively discussion about whether trade secrets cases should have similar local rules.  Local rules may be beneficial in California due to quirks in California state law and the outsized number of bet-the-company trade secrets disputes. For example, the State requires litigants to identify trade secrets with particularity before discovery commences—restrictions that do not exist or are less stringent in other jurisdictions. Moreover, many big-ticket trade secrets cases are litigated in California state court. Decisions in superior court are rarely published, and California's general prohibition on citing to unpublished opinions leaves litigants with little binding authority to guide them. Local rules could fill this gap by providing procedural presumptions or default rules.

We are not, however, ready to embrace one-size-fits-all local rules to generally govern trade secrets disputes. Not every trade secrets case should be managed like it's bet-the-company litigation, and a general local rule for trade secret cases may imposed an excessive degree of judicial oversight and process for cases  where the main goal is injunctive relief, where damages may be limited, or where misappropriation of trade secrets is not the principal claim.

The U.S. will be the preferred forum for trade secrets litigation

Generally, the laws of the United States do not apply outside its borders. This presumption against extraterritoriality evaporates, however, when Congress affirmatively legislates to the contrary. The United States Code chapter addressing the protection of trade secrets expressly states that it applies to conduct that occurred outside the United States if the defendant is either a domestic corporation or if an act in furtherance of the offense occurred inside the United States.

It's not clear to what degree entirely foreign conduct, like foreign misappropriation and foreign use of a trade secret resulting in foreign profits, would be actionable under the United States, and recent Supreme Court decision on personal jurisdiction may curtail litigants' ability to pursue primarily foreign wrongs in the United States. But the DTSA clearly has some extraterritorial application, though the full extent of that reach remains open to debate.

Risk presented by the failed/completed acquisition

A large portion of the discussion centered around trade secrets claims involving a failed merger or acquisition. Some practitioners viewed the failed transaction as creating the greatest risk, because the potential acquirer is clearly shopping in that space, and the spurned subject could easily allege that a subsequent development or acquisition was done in part through trade secrets acquired during the due-diligence process. From a day-to-day business perspective, this scenario presented the greatest continuing compliance risks.

Others, on the other hand, were most concerned with the completed merger or acquisition—the reason being that the completed merger or acquisition presents the greatest risk for significant damages. Especially in the startup context, the company's value as a going concern may be entirely derived from its intellectual property, and counsel can (and regularly do) argue that the value of misappropriated trade secrets is the price of the acquisition, less the value of any tangible assets.

Conclusion

We applaud the Sedona Conference for creating a dynamic discussion about cutting-edge issues in trade secrets law. We hope that the Sedona Conference continues to develop thought leadership in this area.

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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Authors
Erik W. Weibust
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