Intellectual Property

3 Takeaways From The 2023 Lex Machina Trade Secret Litigation Report

This year’s report helps to give us a more accurate picture of how current trade secret claims are adjudicated, both at the trial court and on appeal.

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Intellectual PropertyCompliments of Lex Machina, I was fortunate to get an early look at its just-released 2023 Trade Secret Litigation Report, focusing on the 2018-22 period for trade secret litigation in federal district courts and appellate courts nationwide. As readers know,  the passage of the Defend Trade Secrets Act (“DTSA” — signed into law by President Barack Obama in May 2016) has changed the complexion of trade secret litigation. This year’s report helps to give us a more accurate picture of how current trade secret claims are adjudicated, both at the trial court and on appeal. In the words of the report’s editor, Elaine Chow: “We can see that there was an overall decline in trade secret cases since the DTSA was enacted in 2016. However, our data also revealed that the proportion of trade secret cases that involved DTSA claims increased over the same period of time. This provides a data-driven perspective into the effect of the DTSA on trade secret litigation.” Put another way, DTSA claims are playing a more prominent role in federal trade secret cases, even as the volume of those cases has not grown over time.

For the first takeaway from the report, we can try to unpack why the number of trade secret cases filed in federal courts nationwide has stayed flat since 2016. In fact, 2022 saw “a 7% decrease from the number of trade secret cases the year before and a 17% decrease from the highest number of trade secret cases filed in any year over the past decade (1,394 cases filed in 2017).” In absolute numbers, less than 1,200 trade secret cases were filed in 2022, an amount that pales in comparison to 2022’s patent litigation filings, which were close to 4,000 new cases nationwide. Yet, 80% of 2022’s trade secret filings included a DTSA claim, a 10% increase in the presence of such claims relative to 2018’s filings. In short, as time passes, litigants and their counsel are proving more comfortable in asserting DTSA claims, which should lead to further development of precedent relative to that youngest of intellectual property acts in the U.S. legal system.

While the report does not mention COVID-19’s impact on trade secret litigation — at all — it is not hard to imagine that the pandemic had at least some effect on the number of cases filed. On the one hand, we can imagine that because the majority of trade secret claims arise out of employee movement, the workplace disruption wrought by the pandemic may have contributed to more employees leaving their employers. With some of them taking some confidential information along, as happens at least on occasion. On the other hand, the general slowdown in commercial litigation due to COVID-19 policies and their impact on courthouse operations could have worked to offset any expected rise in trade secret claims due to increased employee movement, whether elective or forced, during the pandemic. At a minimum, it is an interesting question that I am sure trade secret litigators and their law firms are keen to see resolved in favor of more filings going forward.

Turning now to the second takeaway from the report, there is a lot of interest in terms of remedies discussed in the report, especially because injunctive relief plays a prominent role in trade secret cases. For one, “the trade secret practice area has a large number of injunctions granted by consent judgment. Since many defendants are individuals, they are frequently inclined to consent to an injunction rather than engage in costly litigation against a company with deeper pockets.” In fact, 48 out of 66 cases that went to judgment on the merits saw a permanent injunction entered, compared to over 800 injunctions granted either through default or on consent. At the same time, damages in trade secret cases proved very variable year to year, with 2019’s 12 cases averaging just about $1 million in damages per case, while 2021 saw over $660 million awarded over 37 winning cases. With the highest jury award of $135.8 million coming in 2020, it is clear as well that patent cases continue to drive higher damages awards compared to trade secret cases — even as many patent plaintiffs would love to have the same availability of injunctions that trade secret claims often lead to.

Lastly, it is interesting to consider the report’s analysis of the most active trade secret venues for our third and final takeaway. While district courts based in Los Angeles and Manhattan led the way with over 300 total cases filed in each over the report’s five-year analysis period, neither jurisdiction came close to handling even 10% of trade secret cases filed in that time. Still, as the report notes, even though “trade secret cases tend to be filed throughout the country, districts that encompass large population centers often emerge as the most active districts.” Unsurprisingly, therefore, Chicago, Silicon Valley/San Francisco, New Jersey, and the Orlando metroplex all saw a good number of cases filed. On the appeals front, the 9th Circuit “was the most active circuit over the last five years with 131 Trade Secret Appellate Cases (equivalent to 16% of all Trade Secret Appellate Cases docketed during that period of time).“ Again, that is not a surprise, considering that the Central and Northern Districts of California combined for over 600 cases filed between 2018 and 2022. In short, trade secret litigation is a coast-to-coast practice area, with pockets of concentration in places where large corporations may have lots of employees, or as in the case of franchises, where high numbers of franchisees are located. In addition to the above, the report contains a lot of additional information of interest, so thanks once again to the Lex Machina team for collating and presenting this year’s report, as usual, in such a useful and clear way.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

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Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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