Key Takeaways from New Report on Trade Secret Litigation Trends

Trade Secret Litigation is on the Rise, in Large Part Due to the Enactment of the Defend Trade Secrets Act of 2016

From disgruntled employees walking out the door with confidential computer files to hackers breaching computer systems in hopes of obtaining valuable data, technology has made trade secret theft easier and more prevalent. Trade secret litigation is also on the rise, in large part due to the enactment of the Defend Trade Secrets Act (DTSA) of 2016. The DTSA created a federal cause of action for trade secret misappropriation, giving companies a powerful new tool to enforce their intellectual property rights.

Protecting Your Trade Secrets

U.S. businesses lose billions of dollars every year due to trade secret theft at the hands of employees, competitors, and even foreign governments. Prior to the DTSA, victims of trade secret misappropriation could only bring civil suits under a patchwork of state laws.

The Defend Trade Secrets Act aims to provide uniform remedies for misappropriation of trade secrets. The key provision of the DTSA provides 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.”

Among other remedies, the DTSA provides for injunctive relief to prevent any actual or threatened misappropriation of trade secrets. Unlike state laws, the federal statute allows trade secret owners to seek a civil seizure “to prevent the propagation or dissemination of the trade secret.” When “exceptional circumstances” exist that render injunctive relief “inequitable,” courts are also authorized to order the defendant to pay a reasonable royalty for the continued use of the trade secret.

Once the court determines that a trade secret has been unlawfully misappropriated, the owner is entitled to compensatory damages, which may include (i) actual loss of the trade secret; (ii) any unjust enrichment; or (ii) a reasonable royalty for the use.  Punitive damages are available when a trade secret is “willfully and maliciously misappropriated,” while attorneys’ fees are available in cases of bad faith.

Trade Secret Litigation Insights

Given that the DTSA is relatively new and state cases are difficult to track, there has not been a lot of data available regarding trade secret litigation. To provide greater insight, Lex Machina, a legal analytics company, recently launched a new platform devoted to trade secret litigation. The data currently encompasses more than 9,600 cases involving trade secret litigation pending in federal court since 2009, including those filed under the DTSA.

An analysis from Lex Machina revealed several interesting trends, including:

• The Central District of California sees the most trade secret cases (7 percent), followed by the Southern District of New York (5 percent) and the District of Illinois (5 percent).
• More than 1,350 cases with DTSA claims have been filed during the two years since it was enacted on May 11, 2016; only 11 of the over 550 currently active Article III district judges have evaluated DTSA claims on contested motions or presided over the issue at trial.
• Overall, 71 percent of trade secret cases that resolve at trial are won by claimants whereas 29 percent are won by claim defendants. In comparison, in patent cases filed between 2000 to 2018, 7 percent were won by the claimant; 4 percent were won by the defendant; 68 percent resulted in a likely settlement; and 14 percent were resolved on a procedural resolution.
• In trade secret cases, 51 percent of claimants were granted a temporary restraining order (TRO), 86 percent were granted a permanent injunction, and 63 percent were denied a preliminary injunction.

The above trends confirm that the case law surrounding the DTSA is still evolving, with many federal judges not yet experienced with trade secret misappropriation claims. Nonetheless, the novelty of the federal claim should not deter trade secret owners from taking action, given the relative likelihood of success and the legal remedies available.

According to the Lex Machina analysis, the majority of trade secret misappropriation defendants are employees, highlighting the need for companies to safeguard their proprietary information with non-disclosure agreements and other legal tools. It also strongly suggests that companies can benefit from working with law firms that have significant experience in both Labor & Employment and Intellectual Property Law.

If you have any questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Jason LaBerteaux, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.