While there are many options available that afford protection for intellectual property, trade secrets are one way that companies can protect their valuable and proprietary intellectual property. By keeping ideas a secret, companies potentially avail themselves of longer protection than may otherwise be afforded to them by publicly disclosing and patenting these ideas. Choosing to keep IP a secret, however, has it risks. Congress has recently enacted a statutory framework that affords individuals and companies a new option if its trade secret information is stolen or misappropriated.
Historically, the only remedy available to victims of trade secret theft was by filing a civil action in state court, typically under some version of the Uniform Trade Secrets Act (the “UTSA”). And, while 48 states have adopted some form of the UTSA, each state varies in its wording, application, and interpretation of the law. In an effort to address the interstate inconsistencies in the application of the UTSA, Congress recently passed the Defend Trade Secrets Act (the “DTSA”).1 Enacted on May 11, 2016, the DTSA creates a federal cause of action for the misappropriation of trade secrets, so long as “the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce”.2 In addition to providing access to the federal court system, the DTSA provides a “single, national standard for trade secret misappropriation with clear rules and predictability for everyone involved.”3
The provisions of DTSA cannot be applied retroactively, but instead may only be applied to an act that occurred “on or after the date of the enactment of this act.”4 Generally speaking, this means that victims of any trade secret theft which occurred prior to May 11, 2016 are restricted to those remedies available under state law. Recent decisions by some federal circuit courts, however, indicate that despite the act not applying retroactively, in cases where there is continuing misappropriation, a plaintiff may be entitled to at least partial DTSA relief if any occurrence of misappropriation takes place after May 11, 2016. In particular, the Federal District Court for the Middle District of Florida addressed a case involving such circumstances in Adams Arms, LLC v. Unified Weapon Systems, Inc.5
In Adams Arms v. Unified Weapon Systems, the plaintiff Adams Arms (“AA”) filed suit, alleging, among other things, that the defendants, United Weapon Systems (“UWS”) misappropriated AA’s trade secrets. In its complaint, AA argued that this misappropriation arose both through UWS’s acquisition of secret information by improper means, and by UWS’s further disclosure of those secrets to a third party. AA sought relief under the provisions of the DTSA for these wrongful acts.
Responding to the complaint, UWS filed a motion to dismiss AA’s claim under the DTSA. In its motion to dismiss, UWS did not dispute the existence of any theft of trade secrets, but instead argued that any claim under the DTSA should be dismissed because the events amounting to the alleged misappropriation occurred prior to the enactment of the DTSA. While AA did not dispute that the original act of misappropriation - the wrongful acquisition of trade secrets - occurred prior to the enactment of the DTSA, they argued that continuing acts of misappropriation - the disclosure of these acquired trade secrets to a third party - occurred after the enactment of the DTSA. Therefore, AA argued that it was entitled to relief under the DTSA, at least so far as any damage that resulted from this post-enactment disclosure of trade secrets.
Objecting to AA’s argument, UWS pointed to a provision in the DTSA which states that “a civil action under [the DTSA] may not be commenced later than 3 years after the date” of misappropriation and, “for purposes of this subsection, a continuing misappropriation constitutes a single claim of misappropriation.”6 Based on this provision, UWS argued that any continuing misappropriation should be treated as one act of misappropriation under the act, and thus it is irrelevant if any continuing acts of misappropriation took place after the enactment of the DTSA; the court however disagreed.
In its analysis, the court first emphasized that the DTSA provision cited by UWS only addresses the timing of a misappropriation claim for the purpose of determining the statute of limitations, but does not address whether a plaintiff can recover under the DTSA for misappropriation that occurs both before and after the effective date of the act.7 Instead, the court looked to section 2(e) of the DTSA which states that the act applies to “any misappropriation . . . for which any act occurs” after the effective date.8 Based on this reasoning, the court in Adams Arms denied UWS’s motion to dismiss AA’s DTSA claims, finding that at least partial recovery for trade secret theft is available under the DTSA where an act of misappropriation occurred after the effective date of the DTSA.
Based on the findings in this and other cases, it is evident that there remains potential for plaintiffs to benefit from the provisions of the federal Defend Trade Secrets Act, even though the timing of initial misappropriation may have otherwise restricted them to remedies under state law.9 As long as a plaintiff can show that at least one act of misappropriation occurred on or after May 11, 2016, at least partial recovery may still be available in federal court.