Every state has common law or statutory law prohibitions against the theft or disclosure of trade secrets. The federal law is the Defend Trade Secrets Act of 2016 (the “DTSA”) (18 U.S.C. §1836, et seq.). New York relies on common law which creates civil liability for misappropriation of trade secrets.

Trade secrets are only protected under the DTSA if they are related to “a product or service used in, or intended for use in, interstate or foreign commerce.” (18 U.S.C. § 1836(b)).

• What is a trade secret?
  • The DTSA defines the term “trade secret” to mean “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:
    • a) the owner thereof has taken reasonable measures to keep such information secret; and
    • b) the information derives independent economic value, actual or potential, from not being generally known to, and not being 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)). Some courts have articulated the elements more specifically than the DTSA. ¹
• What is misappropriation?
  • There are two ways a person or company may be found liable in a civil action for misappropriation of trade secrets under the DTSA:
    • (1) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
    • (2) disclosure or use of a trade secret of another without express or implied consent. ²
    • When the alleged misappropriation is based on disclosure or use, the person who disclosed the information must have:
      • “(i) used improper means to acquire knowledge of the trade secret;
      • (ii) at the time of the disclosure or use, knew or had reason to know that the trade secret was;
        • (I) derived from or through a person who had used improper means to acquire the trade secret;
        • (II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or
        • (III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret;
      • or (iii) before a material change of the position of the person, knew or had reason to know that—
        • (I) the trade secret was a trade secret; and
        • (II) knowledge of the trade secret had been acquired by accident or mistake.” 18 U.S.C. § 1839(5).
• Preliminary Actions By Employer
  • Investigation
    • Conduct a forensic investigation to determine what, if any, information the employee actually misappropriated; and
    • Attempt to determine which information is truly a trade secret;
  • Commencing the Action
    • Forum: Unless there is an employment of other agreement between the employee and employer, the employer chooses the forum under the DTSA. Federal courts have pendent jurisdiction over related state law claims.
      • Since DTSA’s enactment, courts generally have analyzed DTSA and parallel state law claims consistently and have looked to DTSA jurisprudence to interpret DTSA definitions. ³
      • The DTSA creates a private cause of action for civil trade secret misappropriation under federal law (18 U.S.C. § 1836(b)). The law supplements but does not preempt or eliminate state law remedies for trade secret misappropriation.
    • Decide whether to add the former employee’s new employer and/or one or more third parties in the action.
    • Pleading stage
      • “At the pleading stage” of a DTSA claim, “a plaintiff need not spell out the details of the trade secret,” but must “describe the subject matter of the trade secret with sufficient particularity to . . . permit the defendant to ascertain at least the boundaries within which the secret lies.” ⁴
      • Employer must allege that it took reasonable steps to guard the secrecy of the allegedly misappropriated information. ⁵
    • Independent Economic Value
      • Failure to allege (and prove) independent economic value from the misappropriated information is fatal to a DTSA claim.
        • The competitive value requirement is not met if the public or a competitor can recreate the information. ⁶
    • Inevitable Disclosure Doctrine: This theory applies where it is allegedly impossible for the former employee to perform his or her new job without relying on the employee’s knowledge of the former employer’s trade secrets, disclosing them to the employee’s new employer, or both. Not every state recognizes this doctrine. ⁷
      • Under the DTSA, courts generally impose a higher burden on plaintiffs seeking relief (must show more than a former employee went to a direct competitor to do the same job, and the former employer fears the former employee will disclose trade secrets in doing that job). ⁸
    • Potential Additional Claims
      • Breach of Contract; Business Torts; Violation of Computer Fraud and Abuse Act.
  • Discovery
    • Interrogatories, document requests.
    • Expedited discovery if requesting injunctive relief.
  • Remedies/Relief
    • Injunctive relief;
    • Damages;
    • Attorney’s fees and other costs.
• Potential Defenses/Counterclaims By Former Employee
  • Defenses
    • The information at issue is not a trade secret.
    • The former employer did not take appropriate steps to protect the secrecy of the information.
    • The information was not misappropriated.
  • Counterclaims
    • Unpaid wages, discrimination, retaliatory discharge.
  • The statute of limitations for DTSA is three years after the earlier of when the misappropriation either: (i) is discovered; or (ii) should have been discovered with reasonable diligence.
• Confidentiality during litigation: One challenge for the plaintiff’ is that it must identify and describe the trade secrets it is seeking to protect. However, this issue can generally be resolved via:
  • An Order of Confidentiality; and
  • Filing certain documents under seal with the Court’s approval.

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¹ See, e.g., API Americas Inc. v. Miller, 380 F. Supp. 3d 1141, 1148 (D. Kan. 2019); Arctic Ener. Servs., LLC v. Neal, 2018 WL 1010939, at *2 (D. Colo. Feb. 22, 2018).
² Brand Energy & Infrastructure Servs., Inc. v. Irex Contracting Grp., 2017 WL 1105648, at *3 (E.D. Pa. Mar. 24, 2017)).
³ See, e.g., Earthbound Corp. v. MiTek USA, Inc., 2016 WL 4418013, at *10 (W.D. Wash. Aug. 19, 2016).
⁴ Avaya, Inc. v. Cisco Sys., Inc., 2011 WL 4962817, at *3 (D.N.J. Oct. 18, 2011) (Bongiovanni, M.J.); see AlterG, Inc. v. Boost Treadmills LLC, 2019 WL 4221599, at *6 (N.D. Cal. Sept. 5, 2019).
⁵ See Dichard v. Morgan, 2017 WL 5634110, at *2-3 (D.N.H. Nov. 22, 2017) (plaintiff must allege more than an intent to keep information secret); CPI Card Grp., Inc. v. Dwyer, 294 F. Supp. 3d 791, 808 (D. Minn. 2018) (plaintiff must allege what steps it took to protect the specific information at issue, not merely the existence of general confidentiality policies).
⁶ WeRide Corp., 379 F. Supp. 3d at 847.
⁷ PepsiCo, Inc. v. Redmond, 154F3d 1262 (7th Cir. 1995).
⁸ PrimeSource Bldg. Prods., Inc. v. Huttig Bldg. Prods., Inc., 2017 WL 7795125, at *11-12 (N.D. Ill. Dec. 9, 2017.

Richard B. Friedman
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