Remedies Under the Defend Trade Secrets Act

Table of Contents Ex Parte Civil Seizure ..................................................................................................................................... 2

The Legal Standard for Securing Ex Parte Civil Seizures ......................................................................... 2 Inadequate Alternatives .................................................................................................................. 3 Immediate and Irreparable Injury .................................................................................................... 4 Balance of Harms ............................................................................................................................. 4 Merits of the Claim .......................................................................................................................... 5 Possible Destruction of Evidence ..................................................................................................... 5 Verification of the Property to Be Seized ........................................................................................ 5 Publicity Prohibited .......................................................................................................................... 6 Bond ................................................................................................................................................. 6

Requirements for the Civil Seizure Order and Hearing .......................................................................... 6 Protections for Wrongful Seizure ........................................................................................................... 8

Best Practices for DTSA Ex Parte Civil Seizures ................................................................................ 9 The First Reported Cases Considering Ex Parte Civil Seizure ................................................................. 9

Ex Parte Seizure Granted ............................................................................................................... 10 Ex Parte Seizure Denied but TRO Issued ........................................................................................ 11 Ex Parte Seizure Denied but Defendant Ordered to Deliver Devices to the Court........................ 11 Ex Parte Seizure Denied ................................................................................................................. 13

Injunctions................................................................................................................................................... 13 The Legal Standard for Securing Injunctive Relief ................................................................................ 14

Applying the Four-Factor eBay Test to Injunctions under the DTSA ............................................. 15 Some Courts May Not Require Evidence under the Four-Factor Test, Relying Instead on a

Presumption of Irreparable Harm ........................................................................................... 16 State Law Will Impact DTSA Injunctions Related to Employment ....................................................... 19 The DTSA Permits Courts to Require Protection of the Trade Secret .................................................. 21

Monetary Damages ..................................................................................................................................... 21 Conclusion ................................................................................................................................................... 24

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Remedies Under the Defend Trade Secrets Act On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA), establishing a federal civil cause of action for misappropriation of trade secrets occurring on or after that date. Trade secret misappropriation (as a civil claim) had previously been purely a matter of state law. Although the vast majority of states have statutes based upon the Uniform Trade Secrets Act (UTSA), there are differences in the codifications of the UTSA from state to state and variations in court rulings under them throughout the country.1 In light of this perceived weakness of the UTSA, and in the interest of uniformity in trade secret disputes, the House Committee Report on the DTSA explained the need for federal protection:

[S]tate laws vary in a number of ways and contain built-in limitations that make them not wholly effective in a national and global economy. First, they require companies to tailor costly compliance plans to meet each individual state’s law. Second, trade secret theft today is often not confined to a single state. The theft increasingly involves the movement of secrets across state lines, making it difficult for state courts to efficiently order discovery and service of process. Finally, trade secret cases often require swift action by courts across state lines to preserve evidence and keep a trade secret thief from boarding a plane and taking the secret beyond the reach of American law. In a globalized and national economy, Federal courts are better situated to address these concerns.2

In an effort to overcome these limitations and improve the protection of trade secrets overall, the DTSA establishes a more uniform body of federal law to bring trade secret protection to a level equivalent to the protection afforded other forms of intellectual property. While the DTSA does not preempt state law, it offers a complementary federal remedy.

Significantly, the remedies available under the DTSA include both monetary damages and equitable relief, but they go beyond the protections provided under many states’ laws. For example, the DTSA includes civil seizure provisions modeled after Section 1116(d)(B)(vi) of the Lanham Act, which permits civil seizure of counterfeit goods.3 Under this provision, based on an ex parte proceeding, courts may seize property through police force and prevent dissemination of trade secrets.4

1 See Melvin Jager, 2 Trade Secrets Law §§18:1-69:4 (2016) (providing an overview of trade secret statutes and related cases by state). Massachusetts, New York, and Texas rely on unique statutes and common law for trade secret protection. Id. The remaining forty-eight jurisdictions (including the District of Columbia) have adopted versions of the UTSA. Id.

2 H.R. Rep. No. 114–529, at 4 (2016).

3 See 18 U.S.C. §1836(b)(2) (2016); 15 U.S.C. §1116(d)(B)(vi) (2008).

4 See 18 U.S.C. §1836(b)(2).

This chapter provides an overview of the remedies available under the DTSA, with a comparison

to the remedies available under the UTSA, which has been adopted (in various forms) by 48 jurisdictions.5 These DTSA remedies, which are addressed in turn in the sections below, are as follows:

Ex parte seizures

Injunctions

Damages

Ex Parte Civil Seizure

A key DTSA remedy, which has no counterpart under the UTSA, is a new procedure for obtaining ex parte civil seizure orders (implemented through federal, state, or local law enforcement) from federal district courts. Under the DTSA, a court may—upon an ex parte application supported by an affidavit or verified complaint showing “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.”6 As discussed below, the requirements for obtaining a seizure order are quite onerous, and in the two years since the enactment of the DTSA, courts have rarely issued such seizures.

The Legal Standard for Securing Ex Parte Civil Seizures

Ex parte civil seizures are to be issued only in “extraordinary circumstances” where the high burden of proof set forth under the DTSA has been satisfied. The DTSA expressly outlines factors to be considered and “requirements” for issuing the order:

DTSA 18 U.S.C. §1836(b)(2). Civil Seizure.

In general.

(i) 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.

(ii) 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—

(I) an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another 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;

5 See H.R. Rep. No. 114-529.

6 18 U.S.C. §1836(b)(A)(1).

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(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—

(AA) misappropriated the trade secret of the applicant by improper means; or

(BB) conspired to use improper means to misappropriate the trade secret of the applicant;

(V) 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.

This long list of factors within the plain language of the DTSA illustrates the high burden of proof placed on plaintiffs to secure this remedy. Indeed, the court must support its seizure order with findings of “specific facts” on each of the following factors.

Inadequate Alternatives

First, a court may issue a seizure order only if, among other requirements, a preliminary injunction or temporary restraining order under Federal Rule of Civil Procedure 65, or other form of equitable relief, “would be inadequate…because the party to which the order would be issued would evade, avoid, or

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otherwise not comply with such an order.”7 Thus, from the outset, traditional injunctive remedies must be inadequate.

Immediate and Irreparable Injury

Second, the DTSA also requires that the trade secret owner will suffer “immediate and irreparable injury” from the failure to issue a seizure order.8 While irreparable harm traditionally arises from disclosure of the trade secret, the claim must also demonstrate that this harm would be “immediate.”9 Based on this additional requirement, evidence of future competitive harm may not be sufficiently “immediate.” This factor will clearly require evidence of significant, actual harm to the plaintiff from the misappropriation, beyond typical monetary losses.

Balance of Harms

Third, the harm suffered by the trade secret owner: (1) must outweigh the harm to the “legitimate interests of the person against whom” the seizure would issue; and (2) must “substantially outweigh[] the harm to any third parties” from the seizure order.10 The “substantially outweighs” standard is particularly high because it requires the court to consider the impact on third parties, who are not before the court. For example, a business that unknowingly hires an employee who brings with them trade secrets of a former employer could suffer grave harm to the interruption of its business by a civil seizure. Without the requirement for the court to consider the impact on third parties, the trade secret owner could seek to shut down the new employer’s business, even if the new employer had nothing to do with the theft of the trade secret.

Although the DTSA’s seizure remedy is similar to the Lanham Act’s seizure provisions (permitting civil seizure of counterfeit goods), Congress imposed a more stringent test within the DTSA than under Section 1116(d)(B)(vi) of the Lanham Act. The interests of third parties do not have to be considered under the Lanham Act, let alone that the interests of the plaintiff “substantially outweigh” those of third parties.11 As courts consider civil seizure motions, the potential for harm to third parties will likely weigh substantially in a court’s decision to provide for civil seizure. Evidence that any third parties were involved in or unlawfully benefitted from the misappropriation would be highly persuasive in successfully persuading the court that the balance of harms favors the trade secret owner.

7 Id. §1836(b)(2)(A)(ii)(I).

8 Id. at §1836(b)(2)(A)(ii)(II).

9 Id.

10 Id. at §1836(b)(2)(A)(ii)(III).

11 15 U.S.C. §1116(d)(B)(vi).

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Merits of the Claim

Next, the civil seizure provision incorporates traditional elements considered for any preliminary injunctive relief. The applicant must establish that it is likely to succeed on the merits in showing that the “information is a trade secret” and that the defendant either “misappropriated the trade secret” or “conspired” to misappropriate the trade secret.12

Possible Destruction of Evidence

Another key consideration focuses on the risk that the individual in possession of the alleged trade secret would “destroy, move, hide, or otherwise make [the trade secret]… inaccessible to the court, if the applicant were to proceed on notice.”13 As the civil seizure provision requires an affiant to verify the facts at issue, the declaration or verified complaint should demonstrate facts indicating a risk of destruction of evidence. If an employee copied files then overwrote code to hide the copying or otherwise deleted records of copying, such facts may provide circumstantial evidence that the individual is covering his or her tracks.14 For example, in Brunswick v. Sultanov, the plaintiff filed affidavits indicating that the former employee not only stole trade secrets, but also tried to hide the fact that he stole trade secrets by deleting emails and wiping computer records.15 While ultimately the court refused to issue a civil seizure order, finding alternative relief sufficient, this case provides an example of the type of facts pertaining to destruction of evidence that may be used to support a claim. Overall, any facts indicative of bad acts committed by the party in possession of the trade secrets should be included in an effort to verify that civil seizure is appropriate.

Verification of the Property to Be Seized

The DTSA further requires verification of possession of the property and identification of the property and its location with “reasonable particularity.”16 These requirements focus on the logistics of the order, insuring that it can be narrowly tailored to target the trade secrets alone, but parties should not overlook them in seeking civil seizure. The more information that can be provided to enable the court to issue a narrow order targeting the property at issue, the more likely a court will be to grant such an order.

12 18 U.S.C. §1836(b)(2)(A)(ii)(IV).

13 Id. §1836(b)(2)(A)(ii)(VII).

14 See, e.g., OOO Brunswick Rail Mgmt. v. Sultanov, No. 5:17-CV-00017-EJD, 2017 WL 67119, at *2 (N.D. Cal. Jan. 6, 2017).

15 Id.

16 18 U.S.C. §1836(b)(2)(A)(ii)(VI).

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Publicity Prohibited

The applicant must not “publicize the requested seizure.”17 This provision appears to seek to avoid a situation where the movant publicizes the seizure request to force the entity against whom the seizure is sought into settling the case before the court has even had a chance to weigh the facts.

Bond

Finally, as with most TROs or preliminary injunctions, the court must enter a bond order providing adequate funds to address wrongful seizure of property.18

As noted above, the onerous list of requirements establishes a high burden on the applicant. Civil seizures will most likely be viewed as an extraordinary remedy available where only evidence of the most egregious behavior is present.

Requirements for the Civil Seizure Order and Hearing

The DTSA also incorporates requirements for the court order providing for civil seizure as shown below:

DTSA 18 U.S.C. §1836(b)(2)(B). Elements of Order.

If an order is issued under subparagraph (A), it shall—

(i) set forth findings of fact and conclusions of law required for the order;

(ii) Provide for the narrowest seizure necessary to accomplish the purpose of this paragraph and direct that the seizure be conducted in a manner that minimizes any interruption of the business operations of third parties and, to the extent possible, does not interrupt the legitimate business operations of the person accused of misappropriating the trade secret;

(iii)

(I) be accompanied by an order protecting the seized property from disclosure by prohibiting access by the applicant or the person against whom the order is directed, and prohibiting any copies, in whole or in part, of the seized property, to prevent undue damage to the party against whom the order has issued or others, until such parties have an opportunity to be heard in court; and

(II) provide that if access is granted by the court to the applicant or the person against whom the order is directed, the access shall be consistent with subparagraph (D);

(iv) provide guidance to law enforcement officials executing the seizure that clearly delineates the scope of the authority of the officials, including—

17 Id. §1836(b)(2)(A)(ii)(VIII).

18 Id. §1836(b)(2)(B)(vi).

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(I) hours during which the seizure may be executed; and

(II) whether force may be used to access locked areas;

(v) set a date for a hearing described in subparagraph (F) at the earliest possible time, and not later than 7 days after the order has issued, unless the party against whom the order is directed and others harmed by the order consent to another date for the hearing, except that a party against whom the order has issued or any person harmed by the order may move the court at any time to dissolve or modify the order after giving notice to the applicant who obtained the order; and

(vi) require that the person obtaining the order to provide the security determined adequate by the court for the payment of damages that any person may be entitled to recover as a result of a wrongful or excessive seizure or wrongful or excessive attempted seizure under this paragraph.

Trade secret owners must take all of these requirements into consideration when preparing the motion for a civil seizure. As the court is required to verify that the order is as narrow as possible and provide specific instructions for seizure of the property, the motion itself should seek narrow relief and provide as much information as possible to enable the court to meet these requirements. The requirement that that the party seeking the seizure order provide adequate security for the payment of damages that may be suffered from a wrongful or excessive seizure parallels the requirements for a temporary restraining order under Rule 65(c) of the Federal Rules of Civil Procedure.19 Section 1116(d)(5)(D) under the Lanham Act also incorporates the same requirements.20

The DTSA also requires that the court hold a hearing within seven days of the issuance of the seizure order, at which the applicant has “the burden to prove the facts supporting the findings of fact and conclusions of law necessary to support the order.”21 If the party fails to meet that burden, the seizure order shall be dissolved or modified appropriately.22 The party against whom the seizure was obtained “may move the court at any time to dissolve or modify the order after giving notice to the party who obtained the order.”23 The court may also modify the time limits for discovery under the Federal Rules of Civil Procedure as may be necessary to prevent frustration of the hearing, by permitting, for example expedited discovery.24 Thus, the party seeking civil seizure should be prepared to present its evidence in court quickly after filing.

19 Fed. R. Civ. P. 65(c).

20 15 U.S.C. §1116(d)(5)(D).

21 18 U.S.C. §1836(b)(2)(F)(ii).

22 Id.

23 Id. §1836(b)(2)(B)(v).

24 Id. §1836(b)(2)(F)(iv).

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Protections for Wrongful Seizure

Because of the potential for abuse by the movant, Congress included a number of provisions to protect the interests of the party against whom the seizure is sought. As noted above, the movant must not publicize the seizure, and a court must “take appropriate action to protect the person against whom” the seizure was granted from publicity by the applicant about the seizure order.25

The DTSA further requires that all seized materials “shall be taken into the custody of the court.”26 This means that the movant is not entitled to have “stolen” property returned as part of the civil seizure process. If the “seized material includes a storage medium” or the trade secret is allegedly “stored on a storage medium, the court shall prohibit [it] from being connected to a network or the Internet without the consent of both parties, until the hearing is held.”27

To protect the non-moving party, the DTSA also requires the court to “take appropriate measures to protect the confidentiality of seized materials that are unrelated to the trade secret information seized… unless the person against whom the order is entered consents to disclosure of the material.”28

The court may also appoint a special master “to locate and isolate all misappropriated trade secret information and to facilitate the return of unrelated property and data to the person from whom the property was seized.”29 The court also is not permitted “to allow the applicant to be involved in the seizure.”30 Finally, a court may permit a technical expert not affiliated with the applicant “to participate in the seizure” if such expert “will aid the efficient execution of and minimize the burden of the seizure.”31

The DTSA provides the person against whom seizure was obtained with a cause of action for “wrongful or excessive seizure,”32 providing for the same relief as that set forth under the Lanham Act under Section 1116(d)(11).33 That Section provides “damages for lost profits, cost of materials, loss of

25 Id. §1836(b)(2)(C).

26 Id. §1836(b)(2)(D)(i).

27 Id. §1836(b)(2)(D)(ii).

28 Id. §1836(b)(2)(D)(iii).

29 Id. §1836(b)(2)(D)(iv).

30 Id. §1836(b)(2)(E).

31 Id.

32 Id. at §1836(b)(2)(G).

33 15 U.S.C. §1116(d)(11).

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good will, and punitive damages in instances where the seizure was sought in bad faith, and, unless the court finds extenuating circumstances, to recover a reasonable attorney’s fee.”34

Any person “claim[ing] an interest in the subject matter seized” may make a motion at any time seeking to encrypt the seized material and “[t]he motion shall include, when possible, the desired encryption method.”35 If the movant wishes to obtain encryption of the seized materials, the request should be included with the motion to facilitate the encryption logistically. This will enable the court to arrange to engage a special master or neutral expert to assist with this process and ensure preservation of the trade secret through the seizure process.

The requirements for the DTSA’s civil seizure remedy are onerous, for both the movant and the court. Therefore, applicants seeking civil seizure should make every effort to address each requirement of the requested relief clearly and distinctly, thereby permitting the court to enter an order in compliance with the DTSA.

Best Practices for DTSA Ex Parte Civil Seizures

In June 2017, the Federal Judicial Center published Trade Secret Seizure Best Practices Under the Defend Trade Secrets Act of 2016, authored in consultation with federal judges, the U.S. Marshals Service, and experienced trade secret practitioners.36 These best practices “were written for the federal courts and are designed to help them meet their obligations in seizures of misappropriated trade secrets set forth in the DTSA.”37 The guide sets forth various recommendations, including: (1) choosing law enforcement officers for service and execution of the seizure order; (2) choosing technical experts; (3) choosing substitute custodians for seized material; (4) instructions for executing the seizure; (5) pre-seizure briefings; and (6) appointment of a special master.38 This publication is an essential resource for any party interested in seeking an ex parte seizure.

The First Reported Cases Considering Ex Parte Civil Seizure

In practice, if a court can be persuaded to seize trade secrets held by the defendant, this remedy could put an immediate stop to the misappropriation, especially where early discovery of the threat permits early action to be taken to prevent dissemination of the misappropriated information. For example, if a company discovers that an employee leaving the company copied files containing trade secrets on his way out, the company may secure an ex parte order preemptively to seize the files before

34 Id.

35 18 U.S.C. §1836(b)(2)(H).

36 Timothy T. Lau, Trade Secret Seizure Best Practices under the Defend Trade Secrets Act of 2016, Fed. Judicial Ctr.(June 28, 2017), https://www.fjc.gov/sites/default/files/2017/DTSA_Best_Practices_FJC_June_2017.pdf.

37 Id. at vi.

38 Id. passim.

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the former employee can disseminate the information. That said, it is still early to assess how courts will handle this provision. While plaintiffs have requested this relief in a number of cases, the courts have been hesitant to enter an order for ex parte civil seizure, often because they find other equitable remedies to be a sufficient alternative, as discussed below.

Ex Parte Seizure Granted

The first successful ex parte seizure order under the DTSA was in the Southern District of New York. In Mission Capital Advisors v. Romaka, after a defendant evaded personal service of a temporary restraining order, the Southern District of New York granted an ex parte seizure order.39 The court took the defendant’s evasive conduct as evidence showing that an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure would be inadequate because the defendant would “evade, avoid, or otherwise not comply with such an order.”40

The second successful ex parte seizure order was granted in South Carolina. In AVX Corp. v. JunHee Kim, the District of South Carolina issued a civil seizure and temporary restraining order against plaintiff’s former employee.41 In AVX, the defendant had signed confidentiality and non-disclosure agreements.42 The defendant had also agreed not to access files without “prior clearance.”43 Despite these agreements, the defendant downloaded computer files without authorization.44 The defendant subsequently attempted to conceal the download and retained the files after being terminated.45 The AVX court found that the defendant was likely to “evade, avoid, or otherwise not comply with” an order pursuant to Rule 65 based on his efforts “to conceal the fact that he surreptitiously accessed and downloaded the Stolen Computer Files.”46 The balance of harms weighed in favor of the employer because the defendant’s computers could be seized for forensic analysis then returned after a short time.47 The court indicated that it might allow a technical expert bound by a court-approved nondisclosure agreement to aid in the execution of the seizure.48 The AVX court took care to outline

39 No. 16-cv-05878 (S.D.N.Y. July 29, 2016) (order granting ex parte civil seizure).

40 Id. at 2 (citing 18 U.S.C. §1836(b)(2)).

41 No. 17-CV-00624 (D.S.C. March 8, 2017) (order granting ex parte civil seizure).

42 Id. at 2.

43 Id.

44 Id. at 3.

45 Id.

46 Id. at 5.

47 Id. at 5–6.

48 Id. at 10.

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limitations and requirements designed to minimize harm to the defendant in executing the seizure.49 For example, the order indicated that seizure must be conducted in a manner that minimized any interruption of business operations for third parties and the defendant.50

From these orders, it is clear that movants requesting ex parte seizure should identify parameters that minimize the harm to the defendant from the seizure. By providing logistical guidelines and limitations for executing the seizure, the plaintiff can preemptively address the Court’s concerns in this regard in order to increase the likelihood that seizure will be ordered.

Ex Parte Seizure Denied but TRO Issued

In the Southern District of Florida, a judge recently denied a request for an ex parte seizure, finding evidence supporting prongs (I) and (VII) lacking when applying the statutory test.51 As noted above, the first prong considers whether an order pursuant to Rule 65 would be sufficient.52 The seventh prong considers whether evidence is likely to be hidden or destroyed if notice were provided.53 Although the plaintiff made detailed allegations of misappropriation involving hiding or deleting electronic information, the Balearia court determined the evidence was insufficient.54 However, the Balearia court did consider other remedies. Despite its denial of the request for ex parte seizure, the court ordered expedited discovery of the laptop containing the misappropriated information and issued an ex parte temporary restraining order.55 While these remedies fall short of the requested ex parte civil seizure, securing expedited discovery and an ex parte temporary restraining order presumably reduced the risk of dissemination of the misappropriated trade secrets.

Ex Parte Seizure Denied but Defendant Ordered to Deliver Devices to the Court

The Northern District of California recently heard a motion for ex parte seizure of a company-issued laptop and mobile phone in the possession of a former employee. OOO Brunswick Rail Management.56

49 Id. at 9–10.

50 Id. at 8.

51 Balearia Caribbean LTD. v. Calvo, No. 16-cv-23300 (KMW), at 8 (S.D. Fla. Aug. 5, 2016) (order denying ex parte civil seizure and granting temporary restraining order) (rejecting seizure of laptop where the applicant failed to demonstrate the “extraordinary circumstances contemplated by the DTSA”).

52 18 U.S.C. §1836(b)(2)(A)(ii)(I).

53 Id. §1836(b)(2)(A)(ii)(VII).

54 Balearia Caribbean, supra note 51, at 8.

55 Id. at 12.

56 OOO Brunswick Rail Management, 2017 WL 67119, at *2.

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The former employee had emailed and copied files prior to resigning to begin employment with a competitor.57 Despite the employee’s apparent efforts to cover his tracks by deleting the emails and wiping computers, the company discovered that its trade secrets had been copied and filed suit along with an ex parte motion for civil seizure.58 The motion for ex parte seizure also included requests for other forms of equitable relief.59

Rather than ordering that the police seize the laptop and phone through a civil seizure, the Brunswick court considered alternative remedies to be sufficient.60 Rather than seize the devices, the court ordered the former employee to voluntarily turn over the devices to the court.61 The court further ordered that the former employee not access or modify the devices before delivering them.62 While this relief had the effect of securing the devices themselves, the court refused to order an ex parte seizure.63 While the court ordered the defendant not to access or modify the devices,64 it is not clear from the decision whether this approach created an opportunity for the defendant to destroy or modify evidence after receiving notice of the order.

When courts enter more lenient orders for voluntary surrender of the property or other “affirmative actions” as part of an injunction, there is a concern that notice to the party in possession of the trade secrets may exacerbate the risk of dissemination of the trade secrets or destruction of evidence. In Brunswick, the plaintiff submitted a declaration stating “notice would render the requested relief ineffective.”65 The court entered a temporary restraining order noting the plaintiff’s likelihood to succeed on the merits and risk of irreparable harm, but it still refused the request for ex parte seizure.66

57 Id.

58 Id.

59 See id. at *1.

60 See id. at *9-10.

61 Id.

62 Id. at * 5 (“[S]eizure under the DTSA is unnecessary because the Court will order that [defendant] must deliver these devices to the Court at the time of the [preliminary injunction] hearing scheduled below, and in the meantime, the devices may not be accessed or modified.”).

63 Id. at *5.

64 Id. at *9–10.

65 Id. at *3.

66 Id. at *5.

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Ex Parte Seizure Denied

A few courts have been reluctant to grant ex parte seizures or any other relief.67

As only a few courts have considered ex parte civil seizure, judges are likely hesitant to order ex parte seizures using U.S. Marshals or other law enforcement. Additionally, given the heightened burden for securing ex parte seizures, courts may prove to be more willing to issue injunctions under the DTSA statutory provision permitting “affirmative action” to protect the trade secret in lieu of an outright civil seizure.68

Injunctions

The DTSA authorizes a federal court to grant an injunction to prevent actual or threatened misappropriation of trade secrets.69 The language of the DTSA tracks §2 of the UTSA as illustrated below.

DTSA 18 U.S.C. §1836(b)(3). Remedies.

(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,

UTSA §2. Injunctive Relief.

(a) Actual or threatened misappropriation may be enjoined. Upon application to the court an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

(b) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances include, but are not limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive

67 See, e.g., Compulife Software Inc. v. Newman, No 9:16-cv-81942, at 2 (S.D. Fla. Dec. 8, 2016) (order denying ex parte civil seizure and temporary restraining order) (“Plaintiff has not convinced the Court that a civil seizure order should be entered.”); Dazzle Software, LLC v. Kinney, No. 16-12191, at 1 (E.D. Mich. June 15, 2016) (order denying ex parte civil seizure) (“The Court declines to grant the requested [seizure] relief on an ex parte basis.”).

68 See 18 U.S.C. §1836(b)(3)(A)(ii).

69 Id. §1836(b)(3)(A)(i).

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or business;

(ii) if determined appropriate by the court, requiring affirmative actions to be taken to protect the trade secret; and

(iii) in exceptional circumstances that render an injunction inequitable, that conditions future use of the trade secret upon payment of a reasonable royalty for no longer than the period of time for which such use could have been prohibited.

injunction inequitable.

(c) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.

The Legal Standard for Securing Injunctive Relief

As of this time, there have been very few court decisions involving injunctions under the DTSA and none that address the standard for permanent injunctions. Prior to the enactment of the DTSA, the United States Supreme Court addressed the traditional four-factor test for injunctions in patent infringement cases in eBay Inc. v. MercExchange, LLC.70

Some courts have questioned the applicability of eBay beyond the patent context.71 Even after eBay, some district courts have entered injunctions in trade secret cases without considering the traditional four-factor test, based on state statutes authorizing injunctions upon a showing of misappropriation.72 The enactment of the DTSA should have no impact on the availability of injunctive relief under state law claims in states that recognize a presumption of irreparable harm upon a showing of trade secret misappropriation (e.g., Virginia, Texas, and Utah).73 Because the DTSA does not preempt

70 547 U.S. 388, 394 (2006).

71 See C. Griffith Towle & Robert Zarco, Proving Irreparable Harm—Have The Standards Changed? 21 (ABA 2012) (“As in trademark cases, courts are split on the application of eBay and Winter to the presumption of irreparable harm in trade secret cases.”).

72 See, e.g., Engility Corp. v. Daniels, No. 16-CV-2473-WJM-MEH, 2016 WL 7034976, at *11 (D. Colo. Dec. 2, 2016); Panera, LLC v. Nettles, Case No. 4:16-cv-1181-JAR, 2016 WL 4124114 (E.D. Mo. Aug. 3, 2016); E.I. Dupont De Nemours & Co. v. Kolon Indus., Inc., 894 F. Supp. 2d 691, 706 (E.D. Va. 2012); United States v. Preiss, No. 1:07CV589, 2008 WL 2413895 (M.D.N.C. 2008).

73 See, e.g., Levisa Coal Co. v. Consolidation Coal Co., 662 S.E.2d 44, 53 (Va. 2008) (presumption under Virginia state law); Core Labs. LP v. Spectrum Tracer Servs., L.L.C., 532 F. App’x 904, 909 (Fed. Cir. 2013) (presumption under Texas state law); InnoSys, Inc. v. Mercer, 364 P.3d 1013, 1020 (Utah 2015) (presumption under Utah state law).

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state law, these presumptions will apply to injunctions on state law claims, regardless of the standard applicable to the DTSA claim.74

The question that remains unanswered is whether this traditional four-factor test will necessarily apply to injunctions under the DTSA. Alternatively, the standard to obtain an injunction under the DTSA may be lower, based upon a presumption of irreparable harm, particularly in jurisdictions where courts have rejected the eBay test.

Applying the Four-Factor eBay Test to Injunctions under the DTSA

The eBay decision sets forth the traditional four-factor test applied in the context of a party’s request for injunctive relief. These factors are:

(1) [plaintiff] has suffered an irreparable injury;

(2) remedies available at law, such as monetary damages, are inadequate to compensate for that injury;

(3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and

(4) that the public interest would not be disserved by a permanent injunction.75

In eBay, the Court held that those “familiar principles apply with equal force to disputes arising under the Patent Act.”76 In so doing, the Court analogized the Patent Act to the Copyright Act, suggesting in dicta that this test may apply to injunctions for other claims.77 Moreover, the Supreme Court’s decision

74 Commentators have argued that the plain language of the DTSA suggests a lower standard for entry of injunctive relief compared to the language used in the Patent Act. See Dennis Crouch, Implementing and Interpreting the Defend Trade Secrets Act, PatentlyO (Apr. 27, 2016) (“Depending upon how the statute is interpreted, this setup appears to create a presumption of injunctive relief—a stark difference from contemporary patent law doctrine under eBay v. MercExchange.”), http://patentlyo.com/patent/2016/04/implementing-interpreting-secrets.html. As discussed infra, it is still unclear whether jurisdictions that have historically applied a presumption of irreparable harm when evaluating requests for injunctions in trade secret cases will apply this same presumption in DTSA cases.

75 eBay, 547 U.S. at 391.

76 Id.

77 eBay, 547 U.S. at 392. Following eBay, the Second Circuit questioned the presumption of irreparable harm in trade secret cases in Faiveley Transport Malmo AB v. Wabtec Corporation, holding that a presumption of irrep- arable harm does not automatically arise once a plaintiff has established that a trade secret has been misappro- priated. 559 F.3d 110, 118–19 (2d Cir. 2009). Subsequently, the Eastern District of New York held that eBay forbids a presumption in any case, not just in patent infringement cases. See, e.g., Liberty Power Corp., LLC v. Katz, No. 10-CV-1938 (NGG)(CLP), 2011 WL

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in Winter v. National Resources Defense Council, Inc. would appear to support a broader application of the four-factor analysis to any type of case involving a preliminary injunction.78

To date, the DTSA is still so recent that the injunctions granted under it are preliminary injunctions or temporary restraining orders. Historically, such motions implicate equitable considerations identical or parallel to the considerations of the four-factor test because the claim has not yet been proven. As a result, while the analysis of injunctive relief under most district court opinions thus far appears in line with the four-factor test, it remains unclear whether that test will be applied when a permanent injunction is considered at the conclusion of the case.

Some Courts May Not Require Evidence under the Four-Factor Test, Relying Instead on a Presumption of Irreparable Harm

Based upon pre-eBay caselaw, district courts may apply a presumption of irreparable harm to requests for injunctive relief under the DTSA. Prior to the Supreme Court’s decision in eBay, many courts did not apply the four-factor test when considering injunctive relief. Because the eBay decision considered a patent infringement claim, some courts have distinguished eBay, instead relying upon preexisting trade secret precedent.79 Several states have recognized a presumption of irreparable harm upon a showing of misappropriation under state trade secret law, and federal courts in those jurisdictions in non-DTSA trade secret cases have adopted that presumption without further equitable considerations.80 In future DTSA cases, courts may rely on this line of precedent rather than extending eBay to trade secret claims, thus adopting a lower standard for securing injunctive relief under the DTSA.

For example, the District of Colorado recently held that irreparable harm may be presumed under the DTSA.81 The Engility court explained:

256216, at *5 (E.D.N.Y. Jan. 26, 2011) (relying on Salinger v. Colting, 607 F.3d 68, 78 (2d Cir. 2010)). As a result, the four-factor test will likely be applied in the Second Circuit.

78 555 U.S. 7, 24 (2008) (requiring application of four-factor test in environmental case and cautioning that “[a] preliminary injunction is an extraordinary remedy never awarded as of right. In each case, courts must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief.”) (citations omitted) (emphasis added).

79 See, e.g., Star Fuel Marts, LLC v. Sam’s East, Inc., 362 F.3d 639, 651 (10th Cir. 2004).

80 Merck & Co. Inc. v. Lyon, 941 F. Supp. 1443, 1455 (M.D.N.C. 1996) (“[I]n most instances, courts presume irrepa- rable harm where a trade secret has been misappropriated.”) (citing Lumex, Inc. v. Highsmith, 919 F. Supp. 624, 628 (E.D.N.Y. 1996) (“[L]oss of trade secrets is not measurable in terms of money damages and is thus considered irreparable harm.”)). See also Kirsten Stoll-Debell, Nancy Dempsey, Bradford Dempsey, Injunctive Relief: Tem- porary Restraining Orders and Preliminary Injunctions 47 (2009).

81 See Engility Corp. v. Daniels, No. 16-CV-2473-WJM-MEH, 2016 WL 7034976, at *11 (D. Colo. Dec. 2, 2016) (citing Star Fuel Marts, LLC v. Sam’s East, Inc., 362 F.3d 639 (10th Cir. 2004)).

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[T]he Tenth Circuit excuses the irreparable harm requirement when the evidence shows that a defendant is or will soon be engaged in acts or practices prohibited by statute, and that statute itself provides for injunctive relief to prevent such violations…[b]ecause both the DTSA, 18 U.S.C. §1836(b)(3)(A), and CUTSA, Colo. Rev. Stat. §7–74–103, provide for injunctive relief to prevent misuse of trade secrets, irreparable harm presumptively exists.82

Notably, the Star Fuel case (on which the Engility court relied) was decided two years before eBay.83 In a footnote, the Engility court noted that this precedent may change in light of the Supreme Court’s decision in eBay, but the court said it was bound by established trade secret precedent in the Tenth Circuit, so it applied a presumption of irreparable harm.84 Despite distinguishing eBay, the Engility court described what it called “The Various Standards” that may be applied when considering injunctive relief.85 After applying the presumption of irreparable harm, the district court still weighed the “balance of harms” and “public interest” prior to entering an injunction, resulting in a lower burden than eBay while still considering some of the same factors.86

In the Eighth Circuit, the Eastern District of Missouri entered a temporary restraining order under both the DTSA and Missouri state law.87 In doing so, the district court noted that under state law, irreparable harm may be presumed if a non-compete clause has been violated.88 In a footnote, the court stated: “[a]lthough the Court’s analysis has focused on Panera’s Missouri trade secrets claim, an analysis under the Defend Trade Secrets Act would likely reach a similar conclusion.”89 Thus, the court effectively held that a presumption of irreparable harm under state law met the burden for injunctive relief under the DTSA.90

82 Id. at *11 (emphasis added).

83 Star Fuel Marts, 362 F.3d at 639.

84 Engility Corp., 2016 WL 7034976, at n.10 (“[eBay] strongly suggests that no element of the injunction test should be presumed, thus calling the Star Fuel line of precedent into doubt. But the Tenth Circuit has not repudiated that line of precedent, nor has any Supreme Court case overruled it explicitly or by clear implication. The Court therefore is bound to follow it.”).

85 Id. at *6.

86 Id. at *11.

87 Panera, LLC v. Nettles, Case No. 4:16-cv-1181-JAR, 2016 WL 4124114 (E.D. Mo. Aug. 3, 2016).

88 Id. at *6–7.

89 Id. at *4 n.2.

90 Id.

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Similarly, when considering a trade secret claim under Texas law, the Federal Circuit applied the

four-factor test, but it also adopted a presumption of irreparable harm provided under Texas law to satisfy that factor.91 When providing the standard of review to be applied, the Federal Circuit cited Supreme Court precedent discussing the four-factor test.92 However, when considering the factors, the court applied Texas law establishing a presumption of irreparable harm.93 Thus, even when applying the four-factor test, the Federal Circuit relied on a presumption of irreparable harm pursuant to state law.94

Within the Ninth Circuit, district court opinions conflict on this issue. The District of Oregon entered an injunction under the DTSA based on an analysis of the four-factor test.95 However, the Central District of California has expressly held that eBay has no application outside the patent and copyright contexts.96 While Canfield related to a trademark claim, the court’s analysis limiting eBay suggests that the court would not apply eBay in the trade secret context either.

In the Fourth Circuit, injunctive relief is available merely upon a showing of a statutory violation.97 Based on this Fourth Circuit precedent, the Eastern District of Virginia rejected the application of eBay when considering a permanent injunction under a state trade secret claim.98 Likewise, in United States

91 Core Labs. LP v. Spectrum Tracer Servs., L.L.C., 532 Fed. Appx. 904 (Fed. Cir. 2013).

92 Id. at 908.

93 Id. at 909 (“Under Texas law, ‘[w]hen a defendant possesses trade secrets and is in a position to use them, harm to the trade secret owner may be presumed.’”).

94 Id.

95 Allstate v. Rote, Case No. 3:16-cv-01432, 2016 WL 4191015 (D. Ore. Aug. 7, 2016).

96 Canfield v. Health Communs., Inc., Case No. CV 08-890 SVW, 2008 WL 961318, at *5 (C.D. Cal. Apr. 1, 2008) (“Defendant relies on the Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), to argue that the Court should apply the traditional equitable principles in granting injunctive relief. However, that decision discussed infringement under only in the patent and copyright context. The Ninth Circuit’s rulings on injunction relief in the trademark infringement context were undisturbed.”).

97 See Capital Tool & Mfg. Co., Inc. v. Maschinenfabrik Herkules, 837 F.2d 171, 172 (4th Cir. 1988) (“[A] complainant need not allege or prove irreparable harm when it involves a statute that authorizes injunctive relief. All that need be proved is a violation of the statute.”); Envtl. Def. Fund., Inc. v. Lamphier, 714 F.2d 331, 338 (4th Cir. 1983).

98 E.I. Dupont De Nemours, 894 F. Supp. 2d at 706. The district court in E.I. Dupont distinguished eBay in part because the claim in eBay was “based on a federal statute, not on a state law.” Id. at 705. However, the district court also reasoned that “cases… illustrate a principle common to both Virginia and federal law: a complainant need not allege or prove irreparable harm when it invokes a statute that authorizes injunctive relief. All that need be proved is a violation of the statute.’” Id. (citing Capital Tool & Mfg. Co., Inc. v. Maschinenfabrik Herkules, 837 F.2d 171, 172 (4th Cir. 1988)). In

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v. Preiss, the court considered eBay but concluded that “[a]n injunction may issue without resort to the traditional equitable prerequisites if a statute expressly authorizes the injunction.”99 Thus, district courts in the Fourth Circuit may also adopt a more lenient approach to injunctions under the DTSA.

Despite the Supreme Court’s analysis in eBay, when considering trade secret claims, courts have historically adopted lower standards for trade secret claims, including a presumption of irreparable harm. As noted above, some courts have even created hybrid tests that adopt presumptions for irreparable harm but still consider the remaining factors of the traditional four-factor test. It is still too soon to tell whether federal courts will apply these presumptions under the DTSA or require evidence of all four factors. It will be especially interesting to see how courts handle permanent injunctions in the coming months. That said, in light of the varied standards applied by some district courts thus far, it appears that the goal of uniformity in federal trade secret law remains an elusive one.

State Law Will Impact DTSA Injunctions Related to Employment

The DTSA contains two unique requirements for a court to consider before an injunction can issue in the context of an individual changing employment. First, it must decide whether the alleged misappropriation is based “merely” on a person’s knowledge (i.e., inevitable disclosure).100 Second, it must also decide if the injunction would conflict with state non-compete law.101

In many states, even without evidence of actual or threatened misappropriation, an injunction may be granted to prevent “inevitable disclosure” of trade secrets where an employee “cannot help but rely” on trade secrets.102 Diverging from the majority of states, which recognizes the inevitable disclosure doctrine, the plain language of the DTSA instead rejects the inevitable disclosure doctrine.103 Under the DTSA, an injunction must be “based on threatened misappropriation and not merely information the person knows.”104 The House Committee Report regarding the DTSA explained that these limitations on

Lamphier, the Fourth Circuit expressly held, “[w]here a statute authorizes injunctive relief for its enforcement, plaintiffs need not plead and prove irreparable injury.” 714 F.2d at 338. Thus, the Fourth Circuit reasons that federal statutes may authorize injunctive relief without evidence under the traditional four-factor test even following eBay. Id.

99 No. 1:07CV589, 2008 WL 2413895, at *4 (M.D.N.C. 2008) (citations omitted).

100 18 U.S.C. §1836(b)(3)(A)(i)(I).

101 Id. §1836(b)(3)(A)(i)(II).

102 See, e.g., PepsiCo. Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995) (affirming injunction based upon the “demon- strated inevitability” of reliance on and disclosure of the asserted trade secrets).

103 Id. §1836(b)(3)(A)(i).

104 Id. §1836(b)(3)(A)(i)(I) (emphasis added).

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injunctive relief were included to safeguard employee mobility, leaving little doubt that the legislature intended to reject the inevitable disclosure doctrine.105

That said, the DTSA does not preempt state law—under the UTSA or otherwise—where a state may recognize additional forms of relief, including the inevitable disclosure doctrine. The legislative history explains:

[I]f a State’s trade secrets law authorizes additional remedies, those State-law remedies will still be available. Some courts have found, based on the information possessed by the employee alone, that an injunction may issue to enjoin a former employee from working in a job that would inevitably result in the improper use of trade secrets. Consistent with the overall intent of the Defense Trade Secrets Act…the remedies…are intended to coexist with, and not to preempt, influence, or modify applicable state law governing when an injunction should issue in a trade secret misappropriation matter.106

Thus, where the inevitable disclosure doctrine is recognized under state law, a court may still enjoin an employee under this theory on a state trade secret claim, though an injunction under the DTSA may not be based on this doctrine. In practice, this preserves the inevitable disclosure doctrine in states recognizing it.107

Additionally, the DTSA expressly references state non-compete laws,108 meaning that—despite the goal of promoting a more uniform body of law—injunctive relief will vary by jurisdiction even under the federal statute. Under the DTSA, an injunction cannot prevent an employment relationship or “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”109 However, the DTSA does not prohibit courts from granting an injunction placing conditions on employment to prevent actual or threatened trade secret misappropriation, such as limiting job functions.110

105 H.R. Rep. No. 114-529, at 12.

106 Id.

107 Certain states do not recognize the inevitable disclosure doctrine, including California, Missouri, Maryland, Louisiana, and Virginia. Ryan M. Wiesner, A State-by-State Analysis of Inevitable Disclosure: A Need for Uniformity and a Workable Standard, 16 Marq. Intell. Prop. L. Rev. 211, 218, 222, 224, 227 (2012) Other states have not conclu- sively adopted or rejected the inevitable disclosure doctrine, such as Colorado. Id. at 218. As a result, if state and federal claims were filed in any of these states, the inevitable disclosure doctrine would be precluded entirely.

108 18 U.S.C. §1836(b)(3)(A)(i)(II).

109 Id.

110 Id. §1836(b)(3)(A)(i)(I)–(II); 18 U.S.C. §1838 (2018).

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The courts’ power to implement such restrictions will be limited by state law to avoid “conflict.”111

Thus, in California, where courts disapprove such restrictions and state law voids “[e]very contract by which anyone is restrained from engaging in a lawful possession, trade or business of any kind,” non-compete injunctions under the DTSA will be limited.112 If a claim related to a non-compete agreement were brought in a jurisdiction recognizing broader limitations and enforcement, like Georgia, a federal court would be permitted to enter a more restrictive injunction under the DTSA.113 As a result, forum selection and choice-of-law provisions will influence the scope of injunctions entered under the DTSA.

The DTSA Permits Courts to Require Protection of the Trade Secret

A court, as part of the injunction under the DTSA, may also “require affirmative actions to be taken to protect the trade secret” as part of the order granting injunctive relief.114 This provision may lead to specific steps being required to prevent the public dissemination of the trade secret, even if ex parte seizure has not been ordered. For example, if the trade secret is stored on a medium connected to the Internet, the movant can request that it be removed from that medium or that the medium be disconnected from the Internet.115

Notably, the plain language of the DTSA authorizes the court to require affirmative actions “if determined appropriate.”116 This language is more permissive than the UTSA provision, which indicates that such actions “may be compelled by court order.”117 As parties file motions for preliminary injunctions under the DTSA, this provision may serve as a middle ground for judges hesitant to order seizure of property relating to the trade secret. A court may order that the trade secret be preserved through various affirmative steps using an injunction that fall short of government agents raiding a business in a civil seizure. As discussed in more detail above, courts thus far appear hesitant to order civil seizure, but have entered orders compelling steps to be taken to protect and preserve the trade secrets at issue.

Monetary Damages

As illustrated below, the damages provision of the DTSA tracks the language of the UTSA, providing recovery for (i) actual damages, (ii) unjust enrichment, or a (iii) reasonable royalty.118 Also tracking the

111 35 U.S.C. §1836(b)(3)(A)(i)(II).

112 Cal. Bus. & Prof. Code §16600 (1941).

113 GA Code Ann. §10-1-760 et seq. (1981).

114 18 U.S.C. §1836(b)(3)(A)(ii).

115 Id. §1836(b)(2)(D)(ii).

116 Id. §1836(b)(3)(A)(ii).

117 U.T.S.A. §2(c).

118 18 U.S.C. §1836 (b)(3)(B).

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UTSA, willful misappropriation may double damages.119 Although the scope of this article does not permit a complete review of all trade secret damages jurisprudence,120 the following provides a brief identification of the relevant categories of damages available under the DTSA.

DTSA18 U.S.C. §1836(b)(3). Remedies.*

(B) award—

(i)

(I) damages for actual loss caused by the misappropriation of the trade secret; and

(II) damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss; or

(ii) in lieu of damages measured by any other methods, 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).

UTSA §3. Damages.

(a) Except to the extent that a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation renders a monetary recovery inequitable, a complainant is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.

(b) If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subsection (a).

________________________ * (Emphasis added throughout table.)

Given the similarity between the DTSA damages provisions the UTSA provisions, courts are likely to continue calculating damages as they have under the UTSA. Historically, damages under the UTSA have mirrored damages analysis for patent infringement cases.121

119 Id. §1836(b)(3)(C).

120 For a more detailed treatment of trade secret damages, see Jager, supra, note 1. See also Mark A. Glick, Lara A. Reymann, Richard Hoffman, Intellectual Property Damages: Guidelines and Analysis 334–348 (2003).

121 Univ. Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 535 (5th Cir. 1974) (citing Int’l Indus., Inc. v. Warren Petroleum Corp., 248 F.2d 696, 699 (3d Cir. 1957)) (“[T]he proper measure of damages in the case of a trade secret appropriation is to be determined by reference to the

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Actual damages under the UTSA are typically based on lost profits or “net profits” after incremental

costs and cost savings related to the revenue are taken into account.122 Courts have applied the Panduit factors for determining lost profits for patent infringement when weighing lost profits in trade secret cases.123 While lost profits are the most common measure of actual damages, courts may also take into account loss of investment value in developing the trade secret or business value resulting from the misappropriation.124

Unjust enrichment damages seek profits wrongfully gained due to misappropriation of trade secrets. To determine unjust enrichment, courts compare the defendant’s cost of doing business with and without the misappropriated trade secrets.125 Like calculation of lost profits, unjust enrichment damages take into account costs incurred by the defendant in generating the increased profit, resulting in an award of the “net profit.”126 Plaintiffs may alternatively seek recovery of the economic value of the trade secret at the time of misappropriation.127 Any damages provided for unjust enrichment must not be accounted for in actual damages to avoid double recovery of damages.128

Continuing the trend of following patent damages calculations for trade secret matters under the UTSA, courts often apply the Georgia Pacific factors to assess damages.129

The DTSA provision also includes exemplary damages and an attorney fee shifting provision limited to cases involving bad-faith or willful misappropriation.130 The Supreme Court recently warned that

analogous line of cases involving patent infringement, just as patent infringement cases are used by analogy to determine the damages for copy- right infringement.”).

122 See generally Scott F. Gibson, Remedies for Misappropriation of Trade Secrets under the UTSA (preceding chapter in this publication).

123 Pioneer Hi-Bred Int’l v. Holden Found. Seeds, Inc., 35 F.3d 1226, 1245, n.56 (8th Cir. 1994) (affirming district court’s analysis under the Panduit factors).

124 See, e.g., Cardiovention, Inc. v. Medtronic, Inc., 483 F. Supp. 2d 830, 846 (D. Minn. 2007).

125 Int’l Indus., 248 F.2d at 699.

126 Id.

127 18 U.S.C. §1836(b)(3)(B)(I).

128 Telex Corp. v. IBM Corp., 510 F.2d 894, 930 (10th Cir. 1975).

129 Atlantic Inertial Sys., No. 2:08-cv-02947, 2015 WL 3825318, at *10–15 (C.D. Cal. June 18, 2015); Sunoco Prods. Co. v. Guven, No. 4:12-cv-00790, 2015 WL 127990, at *8–10 (D.S.C. Jan. 8, 2015) (endorsing use of the Georgia-Pacific factors in trade secret cases).

130 Roton Barrier v. Stanley Works, 79 F.3d 1112, 1120 (Fed. Cir. 1996) (“By its very terms, therefore, trade secret misappropriation under ITSA requires a ‘bad act’: the disclosure of someone else’s

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such damages in the patent context are “not to be meted out in a typical infringement case, but are instead designed as a ‘punitive’ or ‘vindictive’ sanction for egregious infringement behavior,” which may have a chilling effect on requests for exemplary damages under the DTSA.131 However, the DTSA requires employers to provide notice of immunity to individuals who confidentially disclose trade secret information to the government or in a court filing,132 and provides that an employer may not be awarded exemplary damages or attorneys’ fees in a case against an employee to whom the employer failed to provide such notice.133

Conclusion

The DTSA creates a new federal claim and, with it, new opportunities to protect trade secrets, though the law interpreting the statute is just now developing. In assessing the scope of remedies under the DTSA, equitable remedies mark the greatest shift from existing trade secret law. The new ex parte seizure remedy codified in the DTSA provides an equitable remedy that goes far beyond traditional state trade secret law, but it is likely to be employed by courts in only the most extreme cases. The DTSA plainly authorizes injunctive relief, but it is not yet clear whether the courts will apply a presumption of irreparable harm when considering requests for injunctive relief. The Supreme Court’s analysis in eBay v. MercExchange will likely result in more uniform application of the four-factor test over time. Finally, the DTSA is designed to avoid conflict with state law, but these provisions will likely result in differences in the relief available under the DTSA from jurisdiction to jurisdiction, despite Congress’s goal of establishing more uniform trade secret protection.

While more uniform protection may evolve as more DTSA matters are handled by federal courts, it will likely take a number of years to weigh the impact of the DTSA on trade secret protection in the United States. For the time being, the enactment of the DTSA provides trade secret owners facing misappropriation with a greater array of remedies available to them.

For further information, please contact Armstrong Teasdale Intellectual Property Litigation Partner Nicholas Clifford. 314.259.4711 // nclifford@armstrongteasdale.com

trade secret. For an award of exemplary damages, that misappropriation must in addition be willful and malicious.”).

131 Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1932 (2016).

132 18 U.S. C. §1833(b)(3)(A).

133 Id. §1833(b)(3)(C).

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