Federal Circuit, Federal Government, Technology

Defend Trade Secrets Act Of 2015 May Open Door To Employers Wishing To Pursue Trade Secret Claims In Federal Court

For years, employers have sought access to federal courts for trade secret misappropriation claims against departing employees who have taken the employer’s proprietary information to use in a new venture or for a new employer.

By Jonah D. Mitchell and Kirin K. Gill  
on

Ed note: This post originally appeared on Technology Law Dispatch.

For years, employers have sought access to federal courts for trade secret misappropriation claims against departing employees who have taken the employer’s proprietary information to use in a new venture or for a new employer. Absent diversity, employers’ options to secure federal jurisdiction were limited, however.

In the 2000s, employers began including claims under the Computer Fraud and Abuse Act (the “CFAA”) as a strategy to gain access to federal court. The CFAA, which was enacted in 1986 and first authorized civil actions in 1994, provides, among others, a cause of action against an individual who “intentionally accesses a computer without authorized access or exceeds authorized access, and thereby obtains” “information from any protected computer.” 18 U.S.C. § 1030(a)(2). “[E]xceeds authorized access” is defined under the CFAA as “access[ing] a computer with authorization and … us[ing] such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter.” 18 U.S.C. § 1030(e)(6).

Employers asserted claims under the CFAA against departing employees who had, for example, emailed the employer’s trade secret or proprietary information to personal email accounts, or downloaded such information to external flash or thumb drives, on the theory that such activity “exceed[ed] [the employee’s] authorized access”. Recently, however, the Ninth Circuit, along with the Fourth Circuit, has interpreted the CFAA more narrowly and found that such activity does not fall within the CFAA because the employee is typically “authorized” in some manner. The Ninth Circuit instead has interpreted the CFAA to be limited to true “hacking” activity, curtailing employers’ ability to use the CFAA as a means to use federal court to seek redress for unlawful activity by departing employees.

Enter the Defend Trade Secrets Act of 2015. Introduced July 29, 2015, the Defend Trade Secrets Act would provide a private right of action under the Economic Espionage Act (the “EEA”) of 1996, which currently only authorizes criminal actions. Under the EEA, the act of placing products manufactured using misappropriated trade secrets into interstate commerce may be punishable by imprisonment and fines. Trade secret misappropriation under the EEA is defined consistently with the Uniform Trade Secret Act (the “UTSA”) and the various state law analogs to the UTSA. Injunctive relief and compensatory damages will be available to plaintiffs pursuing civil actions under the Defend Trade Secrets Act of 2015, and exemplary damages and attorneys’ fees will be available in the event of willful and malicious misappropriation. A unique feature of the Defend Trade Secrets Act of 2015 is a procedure for ex parte seizure orders aimed at pre-notice seizure where there is a risk of destruction or dissemination of the trade secrets if the defendant was notified of the claim.

If the proposed legislation gains traction, a new door to federal court may open for employers in civil disputes against departing employees.

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