§ 6.02 Analysis of the DTSA
| Jurisdiction | United States |
| Publication year | 2020 |
§ 6.02 Analysis of the DTSA
[1] Federal Jurisdiction (18 U.S.C. § 1836)
The DTSA amends the Section 1836 of the EEA to provide that: "An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce." Thus, the scope of the DTSA is only limited by the Commerce Clause of the Constitution. The basis for jurisdiction is identical to that under the EEA, as amended on December 28, 2012 by the Trade Secrets Clarification Act of 2012,22 which was enacted in response to United States v. Aleynikov.23 The court therein found that, under the previous version of Section 1832(a), stolen source code used internally by the victim for a high-frequency trading system was not "related to or included in a product that is produced for or placed in interstate or foreign commerce."24
This means that, under the DTSA, a federal court has jurisdiction over almost any claim of misappropriation of a trade secret so long as the trade secret is related to a product that is intended for use in interstate commerce. There are very few trade secrets that would seemingly fail to meet this requirement. It also means that a federal court will also then "have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution."25
The DTSA only provides a cause of action for acts that occurred on or after the date of its enactment.26 However, courts have held that allegations of pre-enactment acquisition of a trade secret coupled with post-enactment continued use are sufficient to sustain a claim under the DTSA at the motion to dismiss phase.27 In other words, the question of whether pre-enactment conduct is actionable under the DTSA depends on plaintiff's theory of liability.28 Under an "acquisition" theory of liability, a DTSA claim is only actionable if the trade secret was acquired after the effective date of the Act.29 In contrast, under a "disclosure/use" theory of liability, a DTSA claim is actionable when the disclosure or use continued to occur after the effective date.30
This also means that because a violation of the EEA only upon the enactment of the DTSA, RICO claims that assert a violation of the DTSA as a predicate act only become viable after the date of the enactment of the DTSA.31 Mere possession after the date of the enactment is not an allegation the defendant acquired, disclosed, or used the trade secret as required by the DTSA and is not sufficient to claim that the DTSA was violated after the date of its enactment.32 However, once the trade secret is publicly disclosed there is no additional cause of action if the same information is disclosed again.33 Further, a district court rejected defendant's argument that the application of the DTSA that began before the date of the enactment and continued thereafter violated the ex post facto clause of the constitution.34
[2] Trade Secret
"A trade secret 'is one of the most elusive and difficult concepts in the law to define.'"35 The DTSA adopts the broad definition of a trade secret as set out in the EEA, with a small modification. The essential inquiry for a trade secret is whether the information derives economic value, the information is not readily ascertainable by other means, and the holder endeavors for it to remain confidential.36 In addition, the plaintiff must have taken "reasonable" measures to maintain the secrecy of the trade secret. Whether information is a trade secret is ordinarily a question of fact.37 Each of these elements is discussed below.
The kind of the information qualifying as a trade secret is extensive and includes all forms of information, regardless of "how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing." All "financial, business, scientific, technical, economic, or engineering information" may qualify as a trade secret so long as: (1) the information is actually secret, because it is neither known to, nor readily ascertainable by, another person who can obtain economic value from the disclosure or use of the information; (2) the owner has taken "reasonable measures" to maintain the secrecy; and (3) independent economic value is derived from that secrecy.38
Types of information that have qualified under the DTSA, state UTSA statutes, and common law include; (1) advertising, strategies, plans, and techniques;39 (2) business and marketing strategies and methods;40 (3) compilations of information for disk storage devices and data modules;41 (4) construction project information;42 (5) cost information;43 (6) bank customer lists and account information;44 (7) customer lists and information;45 (8) employee lists;46 (9) engineering drawings and blueprints;47 (10) computer software and hardware;48 (12) user name and passcode for a subscription-based website;49 (13) negative research;50 (14) confidential financial information;51 (15) ingredients and recipes for ice cream.52 Software, which has become increasingly valuable, may be a trade secret, based on; (1) the functionality provided by the software; or (2) the information in the software. The key issue, generally, is not the type of information, but whether the information meets the definition of a trade secret. For example, customer lists only become trade secrets where such information meets the requirements of a trade secret.53
One of the most litigated type of information is whether client or customer lists constitutes a trade secret. For example, a number of recent cases under the California Uniform Trade Secrets Act have addressed this issue. In general to be protectable under the CUTSA, the employer must prove that its client list contains information which it independently developed in order to be protected as a trade secret.54 However, other cases suggest that where a client list also contains additional information, such as pay rates, preferred methods of doing business, methods of operation, key contact personnel, and markup rates, which the employer has devoted significant resources to developing or determining a client list, will likely still be protectable under California law.55
In 2019, a number of parties have sought to take full advantage of this very broad definition. For example, a medical marijuana company in Arizona sued its departed CEO under the DTSA for the alleged theft of trade secrets from a cloud storage account.56 In another "weed" case, a state court in Pennsylvania found that news organizations should not receive unredacted copies of applications for state licenses to grow and process medical marijuana because the applications include applicants' proprietary information on things like fertilizer, pesticides, and cannabis processing, all of which are included in the "trade secrets" exemption to Pennsylvania's Right-to-Know law.57 In a case from November 2018, a New England craft beer brewer sued another brewer for theft of trade secrets, among other claims, under the DTSA and Massachusetts trade secret law for publicly posting secret beer formulas on a public job recruitment forum. Other types of trade secret information being litigated in 2019 included methods for bleaching hair and repairing hair damage, process of adding aromas to beverage bottles to enhance the perceived taste, the design of fracking sand shipping containers, designs and manufacturing processes for drones, and the recipes for popcorn.
Notably, with regard to compilations, "even if a compilation of information consists of readily available information, 'it may be protected as a trade secret given the difficulty and expense of compiling the information.'"58 As explained by the Eighth Circuit: "Compilations are specifically contemplated in the [Uniform Trade Secrets Act] definition of a trade secret, and the fact that some or even most of the information was publicly available is not dispositive of the first factor in the UTSA definition. Compilations of non-secret and secret information can be valuable so long as the combination affords a competitive advantage and is not readily ascertainable. Compilations are valuable, not because of the quantum of secret information, but because the expenditure of time, effort, and expense involved in its compilation gives a business a competitive advantage."59 "This means that while pieces of information may be made public through its patents, that information may nonetheless continue to be combined in unique ways that give [plaintiff] a competitive advantage."60
Also in 2019, the Supreme Court in Food Marketing Institute v. Argus Leader Media61 held that commercial or financial information that is customarily and actually treated as private by its owner and provided to the government under an assurance of privacy is "confidential" under exemption 4 to the Freedom of Information Act and is therefore shielded from disclosure. While FOIA generally requires the government to disclose, upon request, previously unreleased information and documents that it has collected, there are certain exceptions, including exemption 4 that protects from disclosure "trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential."
In Argus, a South Dakota newspaper, Argus Leader, filed a FOIA request for data collected by the U.S. Department of Agriculture seeking the names and addresses of all retail stores that participate in the Supplemental Nutrition Assistance Program and the participating store's annual SNAP redemption data. In response, the USDA provided the former but did not provide the "store-level data" that Argus Leader had requested claiming that this information was protected under exemption 4.62 Argus Leader sued the USDA to compel release of the withheld...
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