This year marks the fifth anniversary of the Defend Trade Secrets Act of 2016 (commonly referred to as the DTSA), which created a private right of action in federal court for trade secret misappropriation claims. Before the DTSA’s passage, trade secret theft could only be pursued by private litigants under a patchwork of state trade secret laws and then would only end up in federal court under diversity jurisdiction or when joined with a federal-law claim.

Proponents viewed the DTSA as an opportunity to fundamentally reshape the landscape of U.S. trade secret protection and enforcement. The U.S. Senate Committee on the Judiciary proclaimed the DTSA would “provide a single, national standard for trade secret misappropriation with clear rules and predictability for everyone involved.”¹ Senator Tammy Baldwin (D.-Wis.), an original cosponsor of the legislation, likewise extolled the DTSA’s benefits, declaring “[s]tate-level civil trade secret laws alone [had] not been sufficient to stop interstate theft” and “federal courts are better suited to working across state and national boundaries to facilitate discovery.”² Former President Barack Obama further touted the DTSA as a strong enforcement measure that “allows us to go after folks who are stealing trade secrets … and hurt them where it counts in their pocketbook.”³

With bipartisan support leading up to its passage, the goals of the DTSA were threefold:

• To create a federal civil remedy for trade secret theft;

• To promote uniformity by providing a national standard; and

• To enhance trade secret protections, even across state and international lines.

Although the DTSA is still in its infancy, the emerging body of case law is beginning to show how the law has succeeded in meeting its stated goals. This five-year progress report examines whether and to what extent the DTSA has lived up to its proponents’ aspirations and how it has affected trade secret litigation nationally and in Wisconsin thus far.

Litigants Accept the Invitation to Federal Court

The DTSA accomplished its first goal immediately upon enactment by effectively opening federal courthouse doors to private litigants to pursue theft of trade secrets that relate to “a product or service used in, or intended for use in, interstate or foreign commerce.”⁴

With the doors opened, private litigants quickly took advantage of the DTSA’s new cause of action. In the immediate aftermath of the DTSA’s passage, the total number of trade secret case filings in the U.S. federal courts rose by 30 percent.⁵ The relative stability in the number of case filings both before and after the DTSA bump suggests that the creation of a new federal cause of action was a direct cause of the increased trade secret litigation in federal courts.

Furthermore, in 2016, only 40 percent of federal trade secret cases included a DTSA claim, with the remaining cases entering federal court through diversity jurisdiction. However, by 2020 that percentage had increased to nearly 73 percent, making the DTSA the primary vehicle through which trade secret claims enter the federal courts.⁶

Wisconsin federal courts also saw an uptick in trade secret cases filed in the year immediately following the DTSA’s passage.⁷ In 2017, 10 trade secret cases under the DTSA were filed in Wisconsin federal court compared to four cases in 2016.⁸ Since 2017, however, Wisconsin has seen a steady decline in federal trade secret filings, with nine cases filed in 2018, seven in 2019, and only four in 2020.⁹ The number of trade secret cases expected to be filed in 2021 is even fewer.¹⁰

Several things could explain the decline in federal trade secret litigation in Wisconsin, not the least of which may be the COVID-19 pandemic, but it may also be too soon to draw conclusions. It took a while for full access to federal courts to be realized under the DTSA. Although the DTSA gives trade secret owners the right to file in federal court, the alleged misappropriation that forms the basis of a DTSA claim must have occurred on or after May 11, 2016. This meant that, for the first few years after the DTSA’s enactment, trade secret owners could still only pursue state-law trade secret claims if the alleged misappropriation occurred before May 11, 2016.

Now that several years have passed, trade secret owners are in the clear. The statute of limitation is the same under the DTSA and the Uniform Trade Secrets Act (a model law adopted, with some variations, by 48 states). As a result, trade secret owners are now free to pursue DTSA claims alone or in conjunction with companion state-law claims for misappropriation that allegedly occurred in the three years before filing suit.

Uniformity Is a Work in Progress

As for the DTSA’s second goal, progress toward a uniform, national framework for trade secret misappropriation has been slow. Many courts assessing DTSA claims continue to look to the law of the forum state for guidance in interpreting the new federal law. While this may have been expected given the DTSA’s recent passage, it creates a risk that the DTSA will only cement the patchwork of state trade secret litigation currently in place rather than fulfill its goal of providing a more uniform alternative.

Take, for example, the inevitable disclosure doctrine, which is based on the notion that despite an employee’s good intentions, it is impossible for that employee to compartmentalize trade secrets learned through prior employment. As a result, the employee will “inevitably disclose” a former employer’s trade secrets if required to do similar work on behalf of a new employer. Illinois recognizes the doctrine of inevitable disclosure while Wisconsin does not.

So far, almost all the Wisconsin federal trade secret cases decided since the DTSA was passed have included parallel Wisconsin Uniform Trade Secrets Act (WUTSA) and DTSA claims. In these cases, the state and federal claims tend to rise and fall together.¹¹ Therein lies the problem. Imagine a multistate employer alleging misappropriation under the DTSA and corresponding state law based on a theory of inevitable disclosure in Illinois federal court. Now, imagine the same employer alleging the same claims in Wisconsin federal court. The results could be dramatically different because the Illinois federal court, deferring to Illinois state law, will recognize the inevitable disclosure doctrine, whereas the Wisconsin federal court, deferring to Wisconsin state law, will not.

The applicable pleading standard is another example of the DTSA’s inability, at least in the short term, to meet the promise of a uniform national standard with clear rules and predictability. In the context of trade secret litigation, an overly detailed complaint jeopardizes the proprietary nature of the information a plaintiff seeks to protect by filing a lawsuit. While all federal complaints must meet the same basic pleading requirements,¹² the degree of specificity required for a DTSA claim to satisfy the Twombly and Iqbal “plausibility” standard¹³ remains different among federal courts.

For example, some federal district courts have concluded that complaints alleging violations of the DTSA “need not describe trade secrets with particularity to survive Rule 12 scrutiny.”¹⁴ In contrast, other district courts have adopted a more exacting standard and dismissed DTSA complaints that merely provided a high-level overview of alleged trade secrets because such descriptions did not give the court or the defendants proper notice of the boundaries of the case.¹⁵

To date, only a few reported cases in Wisconsin have addressed the fate of DTSA claims on a motion to dismiss. Of those cases, Danaher Corp. v. Lean FocusLLC is the only case to analyze, albeit briefly, the sufficiency of allegations under the DTSA.¹⁶ In Danaher, Judge William Conley of the U.S. District Court for the Western District of Wisconsin denied the defendant’s motion to dismiss, holding that the plaintiff’s general description of its proprietary business system was sufficient at the pleading stage.

With limited and conflicting decisions from various federal courts regarding the level of specificity required to survive a motion to dismiss, the pleading standard applicable to DTSA claims remains uncertain and short of a clear and predictable national standard. Still, as more time passes and a more robust body of federal case law develops, proponents of the DTSA expect more uniformity to emerge.

Enhanced Federal Trade Secret Protections Effective but Not Fully Realized

The DTSA performed well on its third goal: to enhance trade secret protection in a global economy. Although federal courts have commonly looked to existing state law to interpret the DTSA, the DTSA offers additional protections not found in state law to trade secret owners. For starters, the DTSA’s ex parte seizure provision gives trade secret owners the ability to request law enforcement agencies’ assistance in seizing stolen trade secrets without advance notice to the wrongdoer¹⁷ – an extraordinary remedy unparalleled in any other current federal law. Additionally, the DTSA, including, potentially, its ex parte seizure provision, has an extraterritorial effect.¹⁸ A review of the first five years of DTSA case law suggests these added protections may be underutilized by trade secret owners, at least for now.

Initially one of the DTSA’s most controversial provisions, the ex parte seizure remedy has been limited in application. None of the Wisconsin federal court decisions issued since the DTSA’s passage have involved a request for an ex parte seizure order. In fact, research revealed very few cases nationwide involving ex parte seizure orders. Cases that have addressed requests for ex parte seizures show that litigants can expect to have about a 50 percent chance of obtaining an ex parte seizure order.¹⁹ Among the reasons courts have cited for denying requests for ex parte seizure orders is the fact that other, less extreme remedies like restraining orders or preservation orders are available.²⁰ In some cases, courts have found the requirements for a temporary restraining order are satisfied, while the requirements for a civil seizure under the DTSA (for example, “extraordinary circumstances”) are not.

Because few cases address ex parte seizure orders under the DTSA, it is hard to draw many meaningful conclusions at this stage. One conclusion that can be drawn, however, is that initial fears this provision would lead to the excessive or unrestrained seizure of property have not been validated.

Numerous federal district courts have already confirmed the DTSA’s significant power to police acts of misappropriation occurring outside the U.S.

In addition to authorizing ex parte seizures, the DTSA also sought to build upon existing trade secret protections by extending the DTSA’s reach internationally. Specifically, the DTSA expressly authorizes claims for conduct occurring outside the U.S. if the offender “is a natural person who is a citizen or permanent resident alien of the United States, or an organization organized under the laws of the United States or a State or political subdivision thereof” or if “an act in furtherance of the offense was committed in the United States.”²¹

While the effects of the DTSA’s extraterritorial reach will likely take years to be fully realized, numerous federal district courts have already confirmed the DTSA’s significant power to police acts of misappropriation occurring outside the U.S.²²

Most notably, in Motorola Solutions Inc. v. Hytera Communications Corp., the U.S. District Court for the Northern District of Illinois specifically analyzed the DTSA’s extraterritorial reach and not only upheld its extraterritorial application as a matter of law but also permitted the plaintiff’s extraterritorial claim to proceed despite the fact that the alleged acts of misappropriation occurred entirely outside the U.S.²³ The key rationale behind the court’s expansive interpretation was that the defendant’s subsequent domestic marketing of products that relied on the stolen trade secrets amounted to a domestic “act in furtherance” of the defendant’s unlawful trade secret use.²⁴ Notably, in the exact same decision, the court specifically rejected the plaintiff’s claim that the Illinois Trade Secret Act also applied outside the U.S., which further underscores the DTSA’s success in expanding and strengthening preexisting state-law trade secret protections.

Looking Forward

In only five years since becoming law, the DTSA has proved to be an effective enforcement tool, providing trade secret owners with a federal private cause of action and enhanced protections that reach beyond state lines. Despite its near immediate success on these two fronts, arguably it has fallen short on its promise of national uniformity.

The inconsistent treatment of DTSA claims by federal district courts around the country presents both a strategic challenge and opportunity for attorneys advising clients in trade secret disputes that cross state lines. As previously explained, because state-law and DTSA claims often rise or fall together, state-law differences – like the inevitable disclosure doctrine – are being fed into federal common law. Lawyers should evaluate whether the forum state’s trade secret laws work to their client’s advantage before conceding that the analysis under the DTSA and the applicable state law should be the same. Otherwise, it is possible that, with time, lawyers and trade secret owners will simply become more comfortable with the DTSA, causing the number of parallel claims to naturally decrease. Either way, once enough federal case law develops interpreting the DTSA without deferring to state law, a uniform federal standard will start to emerge. Until then, however, expect to see continued forum shopping as parties look to file their DTSA claims in the forum with the most favorable state trade secret law.

Another final, and perhaps more likely, path toward national uniformity will be through the appellate courts. Certainly, a pronouncement from the U.S. Supreme Court would go a long way toward achieving a national standard for trade secret misappropriation claims. In the meantime, however, lawyers must take care advising clients on choice of law and venue provisions whenever trade secrets are at issue.

Endnotes

¹ S. Rep. No. 114-220, at 14 (2016).

² Press Release, Office of U.S. Senator Tammy Baldwin (Apr. 4, 2016), www.baldwin.senate.gov/press-releases/defend-trade-secrets-act-passes.

³ Remarks by the President at Signing of S. 1890 – Defend Trade Secrets Act of 2016 (May 11, 2016), https://obamawhitehouse.archives.gov/the-press-office/2016/05/11/remarks-president-signing-s-1890-defend-trade-secrets-act-2016.

⁴ 18 U.S.C. § 1836(b)(1).

⁵ Lex Machina, Trade Secret Litigation Report 2021 at 4 (June 2021) (copies available in exchange for registering for product demo at https://pages.lexmachina.com/2021-Trade-Secret-Report_LP.html).

⁶Id. at 5.

⁷https://law.lexmachina.com/cases/?case_types-include=22&case_tags-include=405&pending-from=2009-01-01&court-include=wiwd&court-include=wied&filters=true&tab=timing&view=analytics&cols=4398046512603&bplot_searchlist_controls=1.

⁸Id.

⁹Id.

¹⁰Id.

¹¹See, e.g.,Status Sols. LLC v. JNL Techs. Inc., No. 20-CV-01119-WMC, 2021 WL 2860481, at *3 (W.D. Wis. July 8, 2021); Cargill Inc. v. Bingenheimer, No. 17-CV-300, 2020 WL 1309970, at *6 (E.D. Wis. March 19, 2020); Weather Shield Mfg. Inc. v. Drost, No. 17-CV-294-JDP, 2018 WL 3824150, at *3 (W.D. Wis. Aug. 10, 2018) (all unpublished).

¹²See Fed. R. Civ. P. 8(a).

¹³Ashcroft v. Iqbal, 556 U.S. 662, 675 (2009) (holding that Fed. R. Civ. P. 8 requires that a complaint include facts giving rise to a “plausible” entitlement to relief).

¹⁴Magnesita Refractories Co. v. Tianjin New Century Refractories Co. Ltd., No. 1:17-CV-1587, 2019 WL 1003623, at *9 (M.D. Pa. Feb. 28, 2019) (unpublished) (holding that a general description of “the methods and processes that constitute a plaintiffs’ trade secrets” was a sufficient description of a trade secret to survive Fed. R. Civ. P. 12 scrutiny).

¹⁵Space Data Corp. v. X, No. 16-CV-03260-BLF, 2017 WL 5013363, at *2 (N.D. Cal. Feb. 16, 2017) (unpublished) (holding that broad categories such as “data on the environment in the stratosphere” and “data on the propagation of radio signals from stratospheric balloon-based transceivers” were insufficiently particular to satisfy the requirements for Fed. R. Civ. P. 8).

¹⁶Danaher Corp. v. Lean FocusLLC, No. 19-CV-750-WMC, 2020 WL 4260487, at *10 (W.D. Wis. July 24, 2020) (unpublished).

¹⁷ 18 U.S.C. § 1836(b)(2)(A)(i).

¹⁸See 18 U.S.C. § 1837.

¹⁹CompareARB Labs Inc. v. Woodard, No. 2:19-cv-00116-JAD-PAL, 2019 WL 332404, at *4 (D. Nev. Jan. 25, 2019); Center for Advancing Innovation Inc. v. Bahreini, No. GJH-18-1119, 2018 WL 2100279, at *5 (D. Md. May 4, 2018); OOO Brunswick Rail Mgmt. v. Sultanov, No. 5:17-CV-00017-EJD, 2017 WL 67119, at *2 (N.D. Cal. Jan. 6, 2017); and Dazzle Software II LLC v. Kinney, No. 1:16-cv-12191 (E.D. Mich. July 18, 2016), with Vice Cap. LLC v. CBD World LLC, No. CIV-18-566-D, 2018 WL 8786293, at *3 (W.D. Okla. June 20, 2018); Thoroughbred Ventures LLC v. Disman, No. 4:18-CV-00318, 2018 WL 8786664, at *2 (E.D. Tex. May 1, 2018); Blue Star Land Servs. v. Coleman, No. CIV-17-931-C, 2017 WL 11309528, at *1 (W.D. Okla. Aug. 31, 2017); Axis Steel Detailing Inc. v. Prilex Detailing LLC, No. 2:17-CV-00428-JNP, 2017 WL 8947964, at *2 (D. Utah June 29, 2017) (all unpublished)

²⁰See ARB Labs Inc., 2019 WL 332404, at *4 (D. Nev. Jan. 25, 2019) (concluding plaintiffs met standard for narrowly tailored restraining order without notice but did not demonstrate “extraordinary circumstances” warranting a civil-seizure order); Dazzle Software II LLC v. Kinney, No. 1:16-cv-12191 (E.D. Mich. July 18, 2016) (denying request for civil seizure; instead ordering preservation of devices at issue pursuant to Fed. R. Civ. P. 65) (both unpublished)

²¹ 18 U.S.C §1837.

²²See, e.g., Motorola Sols. Inc. v. Hytera Commc’ns Corp., 436 F. Supp. 3d 1150, 1159 (N.D. Ill. 2020);Luminati Networks Ltd. v. BIScience Inc., No. 2:18-CV-00483-JRG, 2019 WL 2084426, at *9-10 (E.D. Tex. May 13, 2019) (unpublished); Austar Int’l Ltd. v. AustarPharma LLC, Civ. No. 19-8356 (KM) (MAH), 2019 WL 6339848, at *11 (D.N.J. Nov. 27, 2019) (unpublished).

²³Motorola Sols. Inc., 436 F. Supp. 3d at 1165.

²⁴Id.

» Cite this article: 94 Wis. Law. 26-30 (November 2021).