A New Federal Action Transforms Trade Secrets Litigation

JAIDEEP "JAY" VENKATESAN Bergeson, LLP

AFTER YEARS OF FAILED BILLS and stalled legislation, the United States government finally enacted the Defend Trade Secrets Act of 2016 on May 11, 2016 ("DTSA").¹ The new law creates a federal private right of action for parties alleging that other persons or entities have misappropriated their trade secrets. The DTSA was enacted against a backdrop of state trade secrets laws in forty-eight jurisdictions that are largely modeled on the Uniform Trade Secrets Act ("UTSA") published by the Uniform Law Commission in the 1980s.² Federal lawmakers believed that these numerous state laws had developed different standards governing trade secret protection, and the country would benefit from a national law.³ The enactment of the DTSA offers the potential for a uniformly applied federal trade secret law akin to the framework that exists for patent, copyright, and trademark law.

Complicating this development is the existence of a substantial body of state trade secrets law, modeled on the UTSA, which the DTSA itself is also modeled upon,⁴ including state and federal decisions interpreting those laws. In the few decisions involving the DTSA that have been issued subsequent to its enactment, plaintiffs have also asserted claims under concurrent state trade secret laws. This has caused courts to lean heavily on the existing precedent interpreting state law. In Henry Schein, Inc. v. Cook,⁵ the Northern District of California adjudicated a request for a temporary restraining order by a plaintiff asserting claims under both the California Uniform Trade Secrets Act⁶ ("CUSTA") and the DTSA. The court noted that the DTSA and the CUSTA included similar definitions of "trade secrets," and proceeded to apply earlier California decisions that had interpreted the CUSTA.⁷ Similarly, the Western District Court of Washington encountered claims under both the DTSA and Washington’s trade secret act in Earthbound Corp. v. MiTek USA, Inc.⁸ The Earthbound court relied upon state and federal cases that interpreted Washington’s trade secret law and other state laws modeled on the UTSA. In Berkley Risk Adm’rs Co. v. Accident Fund Holdings, Inc.,⁹ the District of Minnesota also examined claims brought under both the DTSA and Minnesota’s trade secret act. It noted that the definition of trade secrets in the DTSA and the Minnesota act were substantially similar, and thus, "the court…construe[d] them as coextensive for purposes of [that] case."¹⁰

One can hardly blame courts for relying on a significant body of existing precedent interpreting laws similar to (indeed, based on the same model act as) the DTSA. As state and federal courts continue to rely on court interpretations of previously-enacted state laws in their local jurisdictions, the goal of creating a body of federal common law consistently applied across the nation has been frustrated.