The 2016 Federal Defend Trade Secrets Act: A Year in Review Houston Bar Association – Corporate Counsel Section June 20, 2017 Shira R. Yoshor | yoshors@gtlaw.com | Angeles G. Cassin | cassina@gtlaw.com |

Major Economic Impact In 2014, PriceWaterhouseCoopers estimated that economic loss due to trade secret theft was between 1% and 3% of the U.S. GDP. At that time, this amounted to $540 billion.

Substantive Differences & Similarities Definition of Trade Secret Definition of Misappropriation Definition of Improper Means TRADE SECRET: DTSA is broader than TUTSA because its definition includes all business information, which should blow the gate wide open. TUTSA: “Information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers, that: a)derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and b)is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” TEX. CIV. PRAC. & REM. CODE § 134A.002(6). DTSA: 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; Misappropriation and Improper Means are substantively the same

Refresher: Key Provisions of the DTSA Broader definition of trade secret 3-year statute of limitations Injunctive relief, monetary damages, attorneys’ fees,* and exemplary damages* Automatic federal jurisdiction Does not preempt state laws Ex parte civil seizure Whistleblower protection Limitations on restricting employment Inevitable disclosure theory not available Whistleblower Provision - Incentivizes employers to notify employees of certain whistleblower rights (otherwise may not be awarded exemplary damages or attorneys’ fees), but some companies may conclude that including the DTSA immunity language encourages misguided “whistleblowing”

Ex Parte Seizure – A High Bar No seizure unless facts clearly show that: Preliminary injunction or TRO is not adequate Immediate and irreparable injury will occur if seizure not granted Harm to applicant outweighs harm to person against whom seizure would be ordered and substantially outweighs harm to third parties A trade secret exists and has been misappropriated or there is a conspiracy to misappropriate it The person against whom seizure would be ordered has actual possession Application describes the matter to be seized and, to a reasonable extent, its location with particularity Person against whom seizure would be ordered, or persons acting in concert with them, would destroy, move, hide, or make unavailable the matter despite notice from applicant Applicant has not publicized the requested seizure Before considering whether to request ex parte seizure, as yourself if a mandatory injunction would accomplish the same goal

Ex Parte Seizure vs. Rule 65 Order (Requirement No. 1) CHEVRON U.S.A., INC., Plaintiff, v. RONALD GUAJARDO, et al., CV H-17-1549, 2017 WL 2265694, at *2 (S.D. Tex. May 24, 2017) N. Am. Deer Registry, Inc. v. DNA Sols., Inc., 4:17-CV- 00062, 2017 WL 2402579, at *10 (E.D. Tex. June 2, 2017) OOO Brunswick Rail Mgmt. v. Sultanov, 5:17-CV- 00017-EJD, 2017 WL 67119, at *2 (N.D. Cal. Jan. 6, 2017) Req. No. 1: Preliminary injunction or TRO is not adequate CHEVRON U.S.A., INC., Plaintiff, v. RONALD GUAJARDO, et al., CV H-17-1549, 2017 WL 2265694, at *2 (S.D. Tex. May 24, 2017) Party wasn’t seeking seizure but wanted court to order P to provide access to all locations where he held electronic information to a third party forensics vendor. Judge Rosenthal said her order is “not that broad” but she did enjoin D from sharing, modifying, or accessing the documents. N. Am. Deer Registry, Inc. v. DNA Sols., Inc., 4:17-CV-00062, 2017 WL 2402579, at *10 (E.D. Tex. June 2, 2017) Similarly, party didn’t seek seizure but Judge Mazzant in the E.D. of TX enjoined D from modifying, using, or representing to others that it owned and had a right to use the TS. OOO Brunswick Rail Mgmt. v. Sultanov, 5:17-CV-00017-EJD, 2017 WL 67119, at *2 (N.D. Cal. Jan. 6, 2017) P did seek seizure, but court held that seizure unnecessary because it was sufficient to order defendant to deliver company issued devices to the court at a scheduled hearing and not access or modify the data in the meantime. NOTE ON IMAGE: you don’t get to bulldoze if a shovel will get the job done.

Ex Parte Seizure – More Harm Than Good (Requirement No. 3) Magnesita Refractories Co. v. Mishra, 2:16-CV-524-PPS- JEM, 2017 WL 655860, at *1 (N.D. Ind. Feb. 17, 2017) “Seizure” of personal laptop without involvement of U.S. Marshals to avoid damage to defendant’s reputation. Court weighed defendant’s privacy interest, defendant’s business interest, and public interest in protection of trade secrets and maintained the laptop in the court’s custody. This isn’t really a seizure so much as a mandatory injunction ordering D to produce his laptop to P’s counsel

Ex Parte Seizure – As a Last Resort (Requirement No. 7) Mission Capital Advisors v. Romaka, No. 1:16-cv-05878-LLS (S.D. N.Y. September 13, 2016) Issued seizure order only after defendant failed to appear at show cause hearing Balearia Caribbean v. Calvo, No. 1:16-cv-23300-KMV (S.D. Fla. Aug. 5, 2016) Declined to order seizer and cited Sen. Grassley’s explanation that seizure should be used when defendant will flee the country, is planning to disclose the trade secrets to a third party immediately, or is otherwise not amenable to the enforcement of court’s orders

How much does it cost to get injunctive relief under the DTSA? Waymo LLC v. Uber Techs., Inc., No. 17-00939 WHA, 2017 WL 2123560, at *13 (N.D. Cal. May 15, 2017) Bond was $5,000,000. Mission Capital Advisors v. Romaka, No. 1:16-cv-05878-LLS (S.D. N.Y. September 13, 2016) Non-refundable fee of $2,000 for the retention of forensic experts, but bond was only $2,000. N. Am. Deer Registry, Inc. v. DNA Sols., Inc., 4:17-CV-00062, 2017 WL 2402579, at *10 (E.D. Tex. June 2, 2017) Bond was $20,000

Is Federal or State Court Better? Ancillary Judge Mandatory Venue Issues in State Court Rotating Docket Issues in State Court Preemption of Common Law Claims Possibility of No Hearing in Federal Court Will Expedited Discovery be Necessary Be sure to call the ancillary court clerk in both situations to determine who the judge will be. Mandatory Venue: CPRC 65.023 in cases where injunctive relief is sought. But see In re Brown, 441 S.W.3d 405, 408 (Tex. App. –Dallas 2013) – holding that forum selection clause in agreement w/ employee was effective to avoid mandatory venue provision applicable to injunctions. TUTSA does not preempt related common law claims, but California’s trade secret statute, for example, does. Should let ancillary clerk know that you need a hearing and how long you’ll need. Particularly in federal court, you should also set out at the beginning of the application the reasons for which a hearing is needed. The Federal Rules don’t provide a standard for the court to use in exercising its authority to order expedited discovery, but it can occur if the parties agree or if you get leave of court (good cause standard applied). Texas S. Ct. has held that trial courts have discretion to schedule discovery and may shorten or lengthen the time for making a response for good cause. In re Colonial Pipeline Co.

Are Attorneys’ Fees and Exemplary Damages Worth It? Whistleblower disclosure not mandated but encouraged Risk appearance of discouraging or chilling reporting of illegal conduct Could encourage misguided whistleblowing Unum Group v. Loftus, No. 4:16-cv-40154-TSH (D. Mass. December 6, 2016) Court treated whistleblower provision as an affirmative defense Side Note: Protection for cooperation with government investigations Unum: employee Loftus removed several boxes of information and a laptop computer from the Unum offices after usual business hours, contending that the information removed related to government inquiries and investigations of misconduct. Unum sued Loftus for federal and state trade secret misappropriation as well as state law conversion. Loftus moved to dismiss the complaint, but Court declined to dismiss because there was not sufficient information. SIDE NOTE POINT: The whistleblower immunity could potentially have the effect of allowing the government greater authority to obtain information regarding companies’ IP, even when that particular company has not violated, and is not suspected of violating, any laws. For Example, the government could theoretically contact employees of a technology company and request that they disclose the tech company’s trade secrets. If the employee cooperated, such disclosure could arguably fall under the whistleblower immunity. The end result would be that the employee is immune from civil or criminal liability, and the company’s trade secrets are now in the hands of the government, with whatever attendant risks that may entail.

Sample Whistleblower Disclosure You are hereby notified in accordance with the Defend Trade Secrets Act of 2016 that you will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. You are further notified that if you file a lawsuit for retaliation by an employer for reporting a suspected violation of law, you may disclose the employer's trade secrets to your attorney and use the trade secret information in the court proceeding if you: (a) file any document containing the trade secret under seal; and (b) do not disclose the trade secret, except pursuant to court order. From the ABA

Best Practices Choice of law cannot override local law in most places Choice of law can override local law if contract is better for employee Choose the law to give the best chance of success Also remember to: Control key documents Lock and limit access to documents that can be changed Circulate confidential materials with “Confidential” stamp Draft and enforce a Nondisclosure (“NDA”) policy No information sharing without NDA Place NDA policy online and add to code of conduct Use a shred box Require complex passwords

Predictions

QUESTIONS?