A year after the 2016 passage of the Defend Trade Secrets Act (DTSA), the number of trade-secret case filings in federal district courts has spiked upward, according to a recent research report. In its first ever “Trade Secrets Litigation Report,” the IP litigation research company Lex Machina reported a 30-percent increase in the number of cases filed in 2017 versus 2016—1,134 to 860—and concluded that the DTSA was the likely reason.
Lex Machina tracked all trade-secret cases filed in federal courts starting in 2009 and found that the annual number held steady at around 900 each year through 2016. But on May 11 of that year, Congress passed the DTSA, a statute designed to make it easier for parties to bring trade-secret actions in federal court. Before passage of the DTSA, trade secrets litigation was primarily a matter of state law. Only criminal charges for trade secret theft were available in federal court. Civil actions were only available under federal courts’ supplemental jurisdiction authority—by linking the trade secrets claim with other IP claims—or when the case involved diverse parties from multiple states. With the passage of the DTSA, however, parties could for the first time pursue civil remedies for trade secret theft in federal courts.
Prior to DTSA, civil actions for trade secret misappropriation were primarily governed by the Uniform Trade Secrets Act (UTSA), which was adopted by 48 states. In adopting DTSA, Congress in large part modeled it after the UTSA, but deviated from state law in several ways, including the creation of a new ex parte seizure remedy to halt the “propagation or dissemination” of the trade secret at issue, but only in “extraordinary circumstances.” It also added a provision to protect whistleblowers.
DTSA allows litigants to include a trade secret misappropriation cause of action in federal court as long as the claim is “related to a product or service used in, or intended for use in, interstate or foreign commerce.” The statute defines “trade secret” as meaning “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled or memorialized physically, electronically, graphically, photographically, or in writing if—
“(A) the owner therefore has taken reasonable measures to keep such information secret, and
(“(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.”
Thus far, at least, trade secret litigation in federal courts does not appear to geographically resemble other IP practice areas where a small number of districts see a high percentage of the overall cases. According to Lex Machina, trade secret litigation is spread out evenly throughout the various district courts, similar to commercial litigation.
Lex Machina suggests that, in large part, the even distribution of trade secret cases is due to the fact that they tend to overlap with other types of cases. “Given the importance of trade secrets to business transactions, complaints bringing trade secrets claims are often accompanied by a claim for breach of contract, or tortious conduct arising from a business relationship.” In Lex Machina’s analysis, 60 percent of trade secret cases overlapped with cases involving commercial litigation. Twenty-two percent included a trademark claim, 11 percent included a copyright claim, and 6 percent included a patent claim.
Lex Machina also found that the increase in federal trade secret actions recorded last year is continuing this year—581 cases have been filed as of July 1.