Federal Precedents Under the DTSA Have Arrived

by Seyfarth Shaw LLP
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While the Defend Trade Secrets Act of 2016 (“DTSA”) has only been in effect for a few months, the first wave of cases raising DTSA claims have started to generate federal decisions. In what appears to be the first substantive ruling under the Act, the Northern District of California illustrated some the advantages – and limitations – of DTSA claims in the context of injunctive relief.

Henry Schein, Inc. (“HSI”), a manufacturer of medical, dental and veterinary supplies, sued its former employee, Jennifer Cook, under the DTSA and a host of other California state law claims. Henry Schein, Inc. v. Cook, 16-cv-03166-JST (N.D. Cal.). Cook, a former sales associate, is alleged to have taken HSI’s trade secrets (including customer information) to her new employer, a competing dental supply company, despite her confidentiality agreements with HSI. HSI sought a temporary restraining order and, later, a preliminary injunction under both the DTSA and California state law claims. The court entered a temporary restraining order and preliminary injunction prohibiting Cook from disclosing HSI’s trade secrets to her new employer, but refused to enter a preliminary injunction that would prevent Cook from contacting or doing business with her former HSI customers in light of California’s policy against non-compete agreements.

Perhaps the most striking aspect of the court’s ruling was ultimately how little effect the DTSA had upon it. The DTSA has been widely viewed as an avenue for plaintiffs to bring trade secret claims in federal court, but HSI already had diversity jurisdiction for its state law claims and, as noted by the Court, HSI’s California Uniform Trade Secrets Act claims closely mirror those brought under the DTSA. In other words, HSI could have brought its state law trade secret misappropriation claims against Cook in federal court even if the case had been filed before the passage of the DTSA, with little impact upon the court’s ruling. The Court noted at several points, in both the TRO and PI orders, the similarities between the DTSA and California’s Uniform Trade Secrets Act, and considered HSI’s claims under both statutes without distinguishing between the two.

The court’s rulings also serve as a reminder that the DTSA does not supplant state law concerning the enforceability of non-compete agreements. California’s longstanding adverse treatment of non-compete agreements was the basis for the court’s refusal to enjoin Cook from “contracting or doing business with her clients,” especially when HSI had failed to show “specific evidence that Cook was utilizing trade secret information to solicit customers.” While not the explicit basis for the court’s ruling, the DTSA requires “evidence of threatened misappropriation,” and not merely a showing that the individual has information in their possession, before the issuance of an injunction under the Act. 18 U.S.C. § 1836(b)(3)(A)(i)(I).

While the court’s decision in HSI may not go into great detail in its consideration of the DTSA, it is worth noting why the court did not have to do so. DTSA claims will, in many cases, closely track claims under state law. The plaintiff in HSI already had an avenue to federal court based on the complete diversity of the parties, but other litigants will undoubtedly have to rely on the DTSA as their basis for federal jurisdiction. The DTSA’s most striking feature – its ex parte seizure provision – remains untested in federal court.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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