United States: Defend Trade Secrets Act First: Claim Tossed Based On Whistleblower Immunity

In what appears to be a first under the Defend Trade Secrets Act ("DTSA"), a United States District Judge has thrown out claims against an alleged trade secret thief on the basis of the DTSA's immunity for confidential disclosures to attorneys in the course of investigating a suspected violation of the law. Christian v. Lannett Co., Inc., No. 16-cv-00963-CDJ, 2018 WL 1532849 (E.D. Pa. Mar. 29, 2018).

Certain Trade Secret Disclosures to Attorneys or the Government Are Protected

The DTSA exempts from both criminal and civil liability any trade secret disclosure made in confidence to a federal, state, or local official or to an attorney if the disclosure is made "solely for the purpose of reporting or investigating a suspected violation of law." 18 U.S.C. § 1833(b)(1).

Court Throws Cold Water on DTSA Counterclaim in Discrimination Lawsuit

In Christian v. Lannett Co., Inc., the Eastern District of Pennsylvania dismissed a counterclaim brought by an employer against a former employee who was suing the company for gender and disability discrimination in violation of federal law. Wendy Christian sued Lannett Co. after the company terminated her in January 2015. Although Christian was required to return all of Lannett's property, she retained a company laptop for a time. She eventually returned the laptop after purportedly erasing its storage drives. But Christian apparently retained company documents.

All of this occurred before the DTSA became effective on May 11, 2016. During discovery, after the DTSA went into effect, Christian produced more than 22,000 pages of documents from her employment with Lannett, which she had turned over to her attorneys. The documents included alleged trade secret material.

After receiving the documents in discovery, Lannett countersued Christian under the DTSA, the Computer Fraud and Abuse Act ("CFAA"), and related state law claims based on Christian's disclosure of company documents to her spouse and to her attorneys.

Christian moved to dismiss the counterclaim against her because her only disclosure that postdated the DTSA's effective date was her providing documents to her attorneys in the course of discovery in her discrimination lawsuit. The DTSA is not retroactive, but it does cover misappropriation initiated before its enactment if the misappropriation continued after enactment. See Brand Energy & Infrastructure Services Inc. v. Irex Contracting Group, No. 16-2499, 2017 WL 1105648, at *4 (E.D. Pa. Mar. 24, 2017); see also Vendavo Inc. v. Price f(x) AG, No. 17-cv-06930-RS, 2018 WL 1456697 at *3 (N.D. Cal. Mar. 23, 2018) (same). (Christian's alleged disclosure to her husband occurred in 2013, so it could not form the basis for a DTSA claim.)

The Court granted Christian's motion, reasoning that Christian's disclosure to her attorneys was immunized by the whistleblower protection under the DTSA, 18 U.S.C. § 1833(b)(1): "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. Therefore, said disclosure to counsel cannot be used to allege a continuing misappropriation of the documents acquired before the DTSA enactment date." 2018 WL 1532849 at *4. The Court noted that the company failed to offer any facts suggesting that Christian or her counsel "intended to use or disclose the purported trade secrets they acquired to anyone other than Defendant, to whom the trade secrets belong" Id. at *5.

Immunity Is Easier to Invoke After Suing

The Christian court distinguished its situation from Unum Group v. Loftus, 220 F. Supp. 3d 143 (D. Mass. 2016), which involved a failed invocation of Section 1833(b) to protect a disclosure to counsel. In Loftus, the employer's DTSA complaint did not allege sufficient facts to permit the defendant to claim the whistleblower immunity as a matter of law. The defendant alleged he was "contemplating a whistleblower action" when he disclosed documents to his attorney, but it was "unclear" from the bare allegations in his employer's lawsuit against him what "suspected violation of law [he was] reporting or investigating" (Id. at 146 n.2).

Notably, Unum Group and Christian both addressed the whistleblower immunity at the pleading stage, which poses unique procedural hurdles. On motions to dismiss, courts are limited to accepting as true the allegations before them. In Unum Group, the company filed suit first, so its allegations defined the parameters of the employee's motion. The Unum Group court expressly noted that the former employee "has not filed any potential lawsuit that could be supported by information" in the purported trade secret documents, nor was it ascertainable from the company's complaint against him whether he "used, is using, or plans to use, those documents for any purpose other than investigating a potential violation of law." In Christian, by contrast, there was an actual—not merely contemplated—lawsuit alleging statutory violations that the Court could examine to provide factual context for the plaintiff's disclosure of potentially protected trade secret material to her attorneys. So, while the courts in Unum Group and Christian reached different results, those results are not contradictory.

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