The Defend Trade Secrets Act and RICO

IP Reports

The newly enacted Defend Trade Secrets Act (“DTSA”) has opened the doors to federal court for plaintiffs seeking to bring trade secrets claims.¹ The DTSA also amended the Racketeer Influenced and Corrupt Organizations (“RICO”) Act by adding theft of trade secrets as a racketeering activity, also known as a “predicate act.”² RICO provides civil plaintiffs with a separate cause of action related to trade secret misappropriation with different elements and damages. A civil RICO claim, in some cases, may provide higher damages than a misappropriation claim.

A RICO claim generally involves showing (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.³ Civil RICO litigation often rises and falls on whether the defendant’s predicate acts constitute a pattern.⁴ At a minimum, a “pattern” means that at least two predicate acts were committed, that the predicate acts were related to one another, and that the predicate acts amount to or pose a threat of continued criminal activity.⁵ These requirements make a RICO claim more appropriate for claims against defendants that engage in long-term or repeated trade secret theft (or other racketeering activity), rather than an isolated offender. Recently, the Supreme Court in RJR Nabisco, Inc. v. The European Community held that although a civil RICO action may be based on predicate acts committed abroad, provided that each predicate act violates a statute that applies extraterritorially, a plaintiff must still allege and prove a domestic injury.⁶

It is notable that “theft” of a trade secret, rather than trade secret misappropriation, constitutes a predicate act under RICO. Theft of a trade secret is a broader concept than misappropriation. While misappropriation generally covers the acts of acquisition, disclosure, and use, theft of a trade secret extends to a wider variety activities, including duplication, alteration, concealing, attempts—and perhaps most notably, mere possession.⁷ These numerous theories of liability may aid a plaintiff in showing a pattern of racketeering activity, and in some cases, may provide liability where a misappropriation theory would not. Even in cases where a misappropriation occurred before May 11, 2016, the effective date of the DTSA, theft of trade secrets may be committed or continue after the effective date.

Relief for misappropriation of trade secrets under the DTSA may include actual loss and unjust enrichment, and where the misappropriation was willful and malicious, exemplary (double) damages, and attorney’s fees.⁸ In contrast, a civil RICO claim allows a plaintiff to recover triple the amount of actual loss and attorney’s fees.⁹ Most courts have found that injunctive relief is not available for civil RICO litigants.¹⁰ Further, while an award of exemplary damages and attorney’s fees against a former employee for trade secret misappropriation is contingent on providing notice of immunity from liability for disclosing trade secrets to a government official or through a court filing, exemplary damages and attorney’s fees under civil RICO are not contingent on providing such notice.¹¹ Since misappropriation and civil RICO provide for different damages, which one provides greater damages will depend on the particulars of each case.

Civil RICO may also provide an avenue after the statute of limitations has run on a misappropriation claim. For misappropriation, the statute of limitations is three years, measured from the date the misappropriation is or should have been discovered.¹² For a civil RICO claim, the statute of limitations is four years from when the harm was or should have been discovered.¹³ A civil RICO claim can be brought even where the predicate acts alleged would be otherwise time-barred.¹⁴

Potential plaintiffs in a trade secret case would be wise to consider bringing a civil RICO claim instead of or in addition to a misappropriation claim. In some cases, such as where the misappropriation occurred prior to the DTSA effective date, or where a misappropriation claim is time-barred, a civil RICO claim may be the only claim available. Potential damages may be higher, and depending on the facts of the case, a plaintiff may find it easier to prove trade secret theft than trade secret misappropriation. The newly amended RICO statute is a valuable new weapon in the trade secret plaintiff’s arsenal.