Trade Secret Identification

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Since its enactment in 2016, the Defend Trade Secrets Act (DTSA) has become the most important trade secrets statute in the world. Here’s the proof. DTSA filings have steadily increased, doubling from 2016’s 476 filings to 2020’s 1,008 filings. According to Lex Machina’s 2021 Trade Secret Litigation Report, 72.9% of all trade secret cases in 2020 and 72.5% in 2019 included a claim under the DTSA. And as other nations recognize the importance of trade secrets and develop their own trade secret laws (see the EU’s Trade Secret Directive and China’s recent amendments to its trade secret law), those nations will likely look to the DTSA for inspiration. When you throw in the increasing reliance on trade secret law and perceived erosion of patent protection, it’s hard to dispute the DTSA’s growing importance.

But the DTSA is far from perfect. Like the Uniform Trade Secrets Act on which it was based, the DTSA can be improved as trade secret law evolves. To that end, I would humbly propose the following two amendments to the DTSA: (1) a “safe harbor” provision for penitent defendants who have agreed to an injunction and are cooperating in a litigation; and (2) a trade secret identification requirement similar to the Model Local Rule suggested by the Sedona Conference’s Trade Secrets Working Group (described below).…

Continue Reading Two Ideas to Improve and Balance the Defend Trade Secrets Act: A Safe Harbor Rule and Early Trade Secret Identification

December was unusually busy and 2023 started with a bang courtesy of the Federal Trade Commission’s (FTC) proposed rule banning noncompetes.  Here are the noteworthy cases and posts from last month, with several notable posts regarding the FTC’s big announcement on Thursday, for good measure:

Noteworthy Defend Trade Secrets Act Cases, Federal Trade Secrets Opinions and Related Commentary:

  • Courts continue to scrutinize claims of irreparable injury in trade secret cases, and no court runs a tighter ship than the U.S. District Court for the Southern District of New York.  In Tomgal LLC v. Castano, District Court Judge John Koeltl of the U.S. District Court for the Southern District of New York denied an injunction request, reasoning that irreparable injury did not exist because any injury arising from the misappropriated trade secrets could be easily calculated.  Judge Koeltl found “every unit of inventory that [defendant] Fashion Code sells to a Robin Ruth distributor is a sale that Robin Ruth did not make,” i.e., profits from the sale of the products containing the misappropriated trade secrets could be easily monetized. Judge Koeltl also rapped the plaintiff’s knuckles on laches grounds, finding that a 7-month delay was substantial and unreasonable.
  • If you don’t identify your trade secrets with particularity, you are not going to get an injunction.  That is the simple message that many federal courts are sending to trade secret owners, and a recent decision by District Court Judge Nugent of the U.S. District Court for the Northern District of Ohio is the latest. To date, most of the discussion regarding trade secret identification has been at the discovery stage but now courts are reinforcing that message by denying early requests for an injunction. In Collar Jobs, LLC v. Slocum, Judge Nugent denied the request for an injunction against a former joint venture partner, expressing concern that “it is not entirely clear what Collar Jobs’ ‘trade secret’ is.”   He also questioned the novelty of the alleged “platform” trade secret before him, which appeared to be a combination trade secret of customer and prospect data.
  • So Judge Nugent’s opinion begs the following question: should the DTSA be amended to include a requirement that trade secret identification is provided early in a case?  In an article for Law360, Willenken LLP’s Amelia Sargent details recent rulings by the U.S. Courts of Appeal for the Seventh Circuit and Ninth Circuit recognizing the need for identification and advocates for that amendment.  It’s a good read and Amelia’s points are reasonable and sound.
  • A recent decision out of Massachusetts cuts against the trend of decisions broadly interpreting the extraterritorial reach of the DTSA.  In Sysco Machinery Corp. v. Cymtek Solutions, Inc., District Court Judge Leo Sorokin of the U.S. District Court for Massachusetts ruled the sale of products in the U.S. that were made using the alleged trade secrets, without more, did not qualify as “an act in furtherance” of misappropriation under the DTSA.  According to Judge Sorokin, the defendant Cymtek used the misappropriated trade secrets improperly to make competing machines in Taiwan, but all of that conduct occurred in Taiwan or outside the United States; as a result, on this record, he found that there was neither “misappropriation” in the United States nor an “act in furtherance of the offense . . . committed in the United States” as required under §1837(2) of the DTSA.  Contrast this ruling to the decisions described in my September 2021 post.  Tough to reconcile in my judgment.

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Continue Reading Monthly Wrap Up (January 9, 2023): Noteworthy Trade Secret and Restrictive Covenant Posts, Cases and Developments

The issue of trade secret identification, on its face, seems like an elementary and uncontroversial one.  In concept, every trade secret plaintiff should be expected to identify the trade secrets in the lawsuit it brings.  After all, the plaintiff knows best what it considers to be a trade secret and what it doesn’t consider to be a trade secret, and the defendant shouldn’t be left to guess what those trade secrets might be.  For these and other reasons, California, a key bellwether state for trade secret law, has long required by statute that a party claiming trade secret misappropriation identify those trade secrets with specificity before being permitted to conduct discovery relating to its trade secret claim.  However, nothing tests the limits of common sense like the realities of litigation, and plaintiffs in California have complained that this procedure has been misused by defendants to frustrate or derail otherwise meritorious trade secret cases.  Perhaps for these reasons, courts outside California remain divided over the so-called California rule as several recent rulings have demonstrated.
Continue Reading Are Other States Following California’s Lead On Trade Secret Identification?