1. Federal Defend Trade Secrets Act (DTSA)

2. Speaker James A. Gale Board Certified in IP Co-Chair, IP Litigation
Cozen O’Connor

3. Meet Jim Gale… Rated AV Preeminent by Martindale Hubbell
Board Certified as a Specialist in Intellectual Property by the Florida Bar
Ranked Patent Lawyer of the Year by Best Lawyers in America®, 2015, 2016, 2017, 2018
Listed in Best Lawyers in America®, Intellectual Property Litigation and Patent Law 2006-Present
Ranked Top Ten Lawyers in United States by US Lawyer Rankings 2006-Present
Selected as SuperLawyer in Intellectual Property 2006-Present
Top Attorneys in Florida for Intellectual Property, Florida Trend Magazine’s Legal Elite 2003-Present
Top Lawyers and Law Firms in South Florida, South Florida Legal Guide
Recognized by The International Who’s Who of Patent Lawyers 3

4. What is the DTSA? Defend Trade Secrets Act of 2016 (18 U.S.C. § 1836)
Passed in the House; unanimous in the Senate
Signed May 11, 2016
Targets trade secret claims on a national uniform basis and provides for federal question jurisdiction (original, but not exclusive Juris)
Not retroactive, but see, cases cited hereinafter related to continued misappropriation after enactment of statute.

5. DTSA – Definition of “Trade Secret”
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

6. DTSA – Definition of Misappropriation
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
Disclosure or use of a trade secret of another without express or implied consent by a person who—
used improper means to acquire knowledge of the trade secret;
at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was—
derived from or through a person who had used improper means to acquire the trade secret;
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
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
before a material change of the position of the person, knew or had reason to know that—
the trade secret was a trade secret; and
knowledge of the trade secret had been acquired by accident or mistake

7. What is the DTSA?
Adopts new safe harbor and links notice of the safe harbor to enhanced damages and collection of fees (18 U.S.C. § 1833)
Provides extensive protections for wrongful or bad faith assertion of a claim, which can be proven by circumstantial evidence

8. DTSA-Seizure Provides new seizure remedy: § 1836. Civil proceedings
(b) Private civil actions.
Civil seizure.
(A) In general.
Application. Based on an affidavit or verified complaint satisfying the requirements of this paragraph, the court may, upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.
Requirements for issuing order. The court may not grant an application under clause (i) unless the court finds that it clearly appears from specific facts that-

9. DTSA-Seizure
(I) an order issued pursuant to Rule 65 …or []other form of equitable relief would be inadequate to achieve the purpose of this paragraph because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order; (II) an immediate and irreparable injury will occur if such seizure is not ordered; (III) the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered of granting the application and substantially outweighs the harm to any third parties who may be harmed by such seizure; (IV) the applicant is likely to succeed in showing that-- (aa) the information is a trade secret; and (bb) the person against whom seizure would be ordered--

10. DTSA - Seizure
misappropriated the trade secret of the applicant by improper means; or
conspired to use improper means to misappropriate the trade secret of the applicant;
the person against whom seizure would be ordered has actual possession of—
(aa) the trade secret; and
(bb) any property to be seized;
(VI) the application describes with reasonable particularity the matter to be seized and, to the extent reasonable under the circumstances, identifies the location where the matter is to be seized;
(VII) the person against whom seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person; and
(VIII) the applicant has not publicized the requested seizure.

11. Statute of Limitations (Retroactivity)

12. Statute of Limitations (Retroactivity)
18 USC § 1836 (d):
A civil action under subsection (b) may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered. For purposes of this subsection, a continuing misappropriation constitutes a single claim of misappropriation.

13. CASES Dealing with “Retroactivity”:
Statute of Limitations:
Adams Arms, LLC v Unified Weapon Systems, Inc., 2016 WL (MD Fla. 9/27/16)
Continued use or disclosure of trade secret after May 11, 2016 still actionable, even though misappropriation occurred prior to May 11, 2016.
“As [Plaintiff] points out, while Subsection 1836(d) states that a continuing misappropriation constitutes a single claim, it does so only "for purposes of this subsection." That subsection addresses only when a claim accrues for statute of limitations purposes, and it does not purport to address the issue in this case: whether an owner may recover under DTSA when the misappropriation occurs both before and after the effective date, assuming the entire misappropriation is within the 3-year limitations period.”
Notes to DTSA:
Pub. L. 114–153, § 2(e), May 11, 2016, 130 Stat. 381, provided that:
“The amendments made by this section [amending this section and sections 1836 and 1839 of this title] shall apply with respect to any misappropriation of a trade secret (as defined in section 1839 of title 18, United States Code, as amended by this section) for which any act occurs on or after the date of the enactment of this Act [May 11, 2016].”
“…[T]his language suggests that when an "act" occurs after the effective date, a partial recovery is available on a misappropriation claim. Supporting this interpretation, the Court notes that Congress omitted from DTSA the following language from Section 11 of the UTSA: "With respect to a continuing misappropriation that began prior to the effective date, the [Act] also does not apply to the continuing misappropriation that occurs after the effective date."

14. Statute of Limitations (Retroactivity)
Compare MO. UTSA:
With, CA UTSA
BP Chemicals Ltd. v. Jiangsu Sopo Corp., 429 F. Supp. 2d 1179, 1190 (E.D. Mo. 2006) (rejecting continuing violation theory because "[t]he [Missouri UTSA] specifically states that if a misappropriation began before the effective date, the Act cannot apply to continuing misappropriation that occurs after that date"),
Cal. Civ. Code § (specifying that, if a continuing misappropriation commenced prior to effective date, the act applies to the part of the misappropriation occurring after the effective date).

15. CASES Dealing with Retroactivity (cont.)
Syntel Sterling Best Shores Mauritius Ltd v. Trizetto Group, Inc., 2016 WL (S.D.N.Y. Sept. 23, 2016)
The Southern District of New York refused to dismiss the defendants’ counterclaims of trade secret misappropriation under the DTSA, because even though the initial acts of alleged misappropriation took place before the enactment of the DTSA, the plaintiff continued its alleged wrongful use of the defendant’s intellectual property after the date of the DTSA’s enactment.
Brand Energy & Infrastructure Servs., Inc. v. Irex Contracting Grp.,
2017 WL (E.D. Pa. Mar. 23, 2017)
Court denied Defendants’ Motion to Dismiss DTSA claims on the same basis as rationale set forth in Adams Arms and Syntel Sterling. Even though acquisition of trade secrets occurred prior to enactment of DTSA, continued “misappropriation” (i.e. use and disclosure) of trade secrets after enactment of DTSA stated a cause of action.
Compare:
Cases where Motion to Dismiss Granted where there were no allegations of post 5/11/16 misappropriation/use/disclosure.

16. Employer safe Harbor/ Employee Immunity?? 18 USC § 1833

17. DTSA – Safe Harbor (18 U.S.C. § 1833)
The DTSA includes a safe harbor and immunity for whistleblower employees
Provides for immunity [for the employee] from any criminal or civil liability under any federal or state trade-secret law for disclosure of a trade secret that is:
made in confidence to an attorney or federal, state, or local governmental official “solely for the purpose of reporting or investigating a suspected violation of law,”
or in a filing in a lawsuit made under seal

18. DTSA – Safe Harbor For Whistle Blowers?? (18 U.S.C. § 1833 (b))
Under the Defend Trade Secrets Act of 2016, 18 U.S.C. sections :
An individual shall 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  is filed  in a lawsuit or other proceeding, if such filing is made under seal.

19. Does “Immunity” Safe Harbor Really Exist for WhistleBlower Employees?
Unum Group v. Loftus –F. Supp.3d– 2016 WL (D. Mass)
Facts:
Loftus was Director of Benefits at Unum;
Was interviewed in September 2016 by Unum In-House counsel re: internal investigation of Unum’s claims practices
Later that week, Loftus removes boxes and materials from office relating to investigation
Turns over materials solely to his counsel
Loftus Counsel thereafter informs Unum that he is reviewing materials solely to analyze Loftis’ legal position vis a vis his employer, and Unum’s compliance with Regulatory requirements.
Unum sues under: I) DTSA, II) Mass. Theft of Trade secrets (No UTSA); and, III) Conversion
Loftus moves to Dismiss under 18 USC § 1833.
Court DENIED Loftus’ Motion to Dismiss Complaint, saying Loftus should raise it as an affirmative Defense
Enters INJUNCTION against Loftus.

20. Does “Immunity” Safe Harbor Really Exist for WhistleBlower Employees?
Unum Group v. Loftus –F. Supp.3d– 2016 WL (D. Mass) (cont.)
Was Loftus Court Correct?
Statute talks of IMMUNITY—not a DEFENSE to Claim:
“An employer shall provide notice of the immunity set forth in this subsection…”
“Immunity” extinguishes liability prior to when litigation occurs.
e.g. Saucier v. Katz, 533 U.S. 194 (2001) (case involving a claim that a Secret Service agent had used excessive force in removing a protester, where SS was provided a “qualified immunity”) Justice Kennedy explained that immunity is not a “mere defense,” but an “immunity from suit.”
BUT- Loftus Decision Probably Correct. Why?
Court Decided Injunction based on Conversion Claim—Not DTSA.
Under Mass. Law, No Preemption of Parallel Claim

21. DTSA – Safe Harbor (18 U.S.C. § 1833 (b))
(3) Notice.-
(A) In general.-An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.
(B) Policy document.-An employer shall be considered to be in compliance with the notice requirement in subparagraph (A) if the employer provides a cross-reference to a policy document provided to the employee that sets forth the employer's reporting policy for a suspected violation of law.
(C) Non-compliance.-If an employer does not comply with the notice requirement in subparagraph (A), the employer may not be awarded exemplary damages or attorney fees under subparagraph (C) or (D) of section 1836(b)(3) in an action against an employee to whom notice was not provided.
(D) Applicability.-This paragraph shall apply to contracts and agreements that are entered into or updated after the date of enactment of this subsection.

22. DTSA – Safe Harbor (18 U.S.C. § 1833)
New Notice Requirements for Employers:
To get punitive damages and attorney fees, a company must notify employee of immunity. Can be accomplished by providing provision in agreement or cross-reference to policy document that sets forth reporting policy for a suspected violation of law.
Applies to contracts that are updated after the date of enactment. So current existing contracts should be revised!

23. Sample Provision The Company advises and I acknowledge my understanding that, pursuant to the Defend Trade Secrets Act of 2016 (“DTSA”), whistleblower and retaliation claim immunity is extended to me. In this regard, I will not be subject to any criminal and/or civil liability for A) the direct or indirect disclosure of trade secret information in confidence to federal, state or local authorities, or to an attorney, for the sole purpose of investigating or reporting suspected violations of law, or B) disclosure in a complaint or other document filed in a lawsuit or other proceeding if it is filed under seal so that it is not disclosed to the public. Additionally, I will not be subject to any criminal and./or civil liability for divulging trade secret information to my attorney or in the filing of a lawsuit for retaliation by the Company for reporting a suspected violation of law, so long as documents containing the trade secrets are filed under seal and not disclosed except by court order.

24. DTSA Impediments to Restrictions on Employment

25. DTSA Impediments to Restrictions on Employment
(3) Remedies. In a civil action brought under this subsection with respect to the misappropriation of a trade secret, a court may--
(A) grant an injunction--
(i) to prevent any actual or threatened misappropriation described in paragraph (1) on such terms as the court deems reasonable, provided the order does not--
(I) prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows; or
(II) otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business;

26. DTSA Impediments to Restrictions on Employment (cont.)
Statutory prevention of use of “Inevitable Disclosure Doctrine” in DTSA injunction orders
SOME States recognize “inevitable disclosure doctrine”
Prevents an employee from going to a competitor for what they KNOW.
E.g. PepsiCo v. Redmond, 54 F.3d 1262 (7th Cir. 1995) (Imposed covenant in absence of same in light of threatened misappropriation under ITSA as a result of what former E’ee knew, not in light of any evidence of disclosure)
Other States recognizing Inevitable Disclosure Doctrine:
Arkansas,
Delaware (E.I. Dupont v. Amer. Potash—first court to use the phrase “inevitable disclosure doctrine.”)
Georgia? (Compare Essex v. Southwire with Holton v Physician Oncology)
Illinois
Iowa
New Jersey
North Carolina
Utah
Washington
States specifically rejecting Inevitable Disclosure Doctrine:
California
Lousiana
Maryland
Virginia

27. Damages

28. Damage Remedies
(B) award-- (i) (I) damages for actual loss caused by the misappropriation …; and (II) damages for any unjust enrichment …not addressed in computing damages for actual loss; or (ii) in lieu of damages …the damages caused by the misappropriation measured by imposition of liability for a reasonable royalty for the misappropriator's unauthorized disclosure or use of the trade secret; (C) if the trade secret is willfully and maliciously misappropriated, award exemplary damages in an amount not more than 2 times the amount of the damages awarded under subparagraph (B); and

29. Damage Remedies--Attorney’s Fees
and (D) if a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, award reasonable attorney's fees to the prevailing party.

30. The End Jim Gale Jon Gale Cozen O’Connor JGale@Cozen.com
(C) 2018, Jim Gale