Does DTSA cover pre-DTSA acts?

Parties have already started to file lawsuits in federal court asserting claims under the Defend Trade Secrets Act, which President Barack Obama signed May 11. Practitioners are eager to see how courts apply the DTSA's ex parte civil seizure provisions, and the interplay between state trade secret statutes and the DTSA will be closely watched. For instance, while California law requires a plaintiff asserting a claim under California's Uniform Trade Secrets Act (CUTSA) to identify its trade secrets with reasonable particularity before commencing discovery, there is no such provision in the DTSA.

One of the early battlegrounds in DTSA cases may concern whether the DTSA covers misappropriation activity that commenced before its enactment, but continues thereafter. By the express language of the DTSA, it only applies to acts of misappropriation occurring on or after May 11, 2016. The DTSA defines misappropriation to include improper acquisition or improper use or disclosure. But misappropriation is often not a single, one-time event. Accordingly, there may be cases in which some misappropriation activity has occurred before May 11 and some misappropriation activity that continues after that date. This fact pattern is present in some of the first DTSA complaints that have been filed alleging pre-DTSA misappropriation and "ongoing" or "continuing" post-DTSA acts of misappropriation.

The following hypothetical scenario common to trade secret cases is illustrative: On April 15, unbeknown to Employer A, Employee downloads Employer A's customer list to take with him to a new job he is starting with Employer B. The DTSA does not cover Employee's improper acquisition of Employer A's customer list because it happened before May 11. But, suppose that on May 24, Employer A discovers Employee's April 15 downloading activity and believes he is using the customer list to now solicit business for Employer B. Could Employer A assert a claim under the DTSA against Employee or Employer B based on the ongoing use of the customer list after May 11?

The concept of "continuing misappropriation" is not absent from the DTSA, but it is addressed only in the subsection of the DTSA that defines the statute of limitations, which notes that a "continuing misappropriation constitutes a single claim of misappropriation." If a "continuing" misappropriation is treated as a single claim, then one may argue that it is the date of the initial act of misappropriation that should govern whether the DTSA covers it. But the subsection which contains the "continuing misappropriation" definition - the statute of limitations subsection - states it is "for purposes of [that] subsection," suggesting that it may not be applicable outside the statute of limitations. The DTSA is otherwise silent on whether it applies to acts of continuing misappropriation where the misappropriation commenced before enactment.

Much of the framework for the DTSA is based on the Uniform Trade Secrets Act (UTSA). The UTSA explicitly places outside its reach misappropriation activity that began before the UTSA has taken effect but continues thereafter. Comments to the UTSA's 1985 amendments confirm that "[n]either misappropriation that began and ended before the effective date nor misappropriation that began before the effective date and continued thereafter is subject to the Act." Unlike many other provisions, the DTSA did not incorporate this provision or its comments from the UTSA.

Many states, including California, have adopted or modeled their trade secret legislation on the UTSA as well. With respect to the issue regarding coverage for pre and post-enactment continuing misappropriation activity, the states adopting the UTSA have typically addressed it explicitly. However, not all such states have followed the UTSA's approach toward continuing misappropriation. For instance, CUTSA states that while the part of the continuing misappropriation that occurred before enactment would not be covered by CUTSA, the part occurring on or after enactment generally would be actionable under CUTSA..

Because the DTSA did not expressly address this issue, parties may fashion arguments either way regarding whether the DTSA covers continuing misappropriation that originates from pre-enactment activity.

In scenarios where the initial misappropriation took place before enactment of the DTSA, another possible way to establish jurisdiction is to plead "threatened misappropriation." The DTSA offers protection against both actual and threatened misappropriation. But, presumably, plaintiffs will need to plead a basis for the threatened misappropriation, which may lead to the same issue, such as whether a "threatened" misappropriation post-enactment gives rise to a DTSA claim if the basis for the threat traces to activity that took place before enactment. There is little guidance in the DTSA on this issue, as it only addresses threatened misappropriation in the context of injunctive relief. Thus, whether the DTSA covers this kind of scenario may hinge on whether a court looks to the timing of the acts that give rise to the threat or the timing of the post-enactment threat itself.

As time passes, this jurisdictional issue will become less important because there will be fewer cases involving pre- and post-enactment misappropriation activity. At this early stage, however, the potential for a jurisdictional challenge poses a strategic dilemma for parties wishing to pursue trade secret misappropriation claims in federal court. Plaintiffs asserting trade secret misappropriation often seek expedited injunctive relief to put a quick stop to the irreparable, competitive harm they believe they are suffering. A jurisdictional challenge could compromise the ability to obtain such relief swiftly, and leaves the possibility of having to start over in state court if the plaintiff cannot demonstrate it has a reasonable probability of success on the jurisdiction question.

Jonah Mitchell is a partner in Reed Smith's Intellectual Property, Information and Innovation Group and focuses his practice on intellectual property and complex commercial litigation, including patents, trade secrets and unfair competition.

Kirin K. Gill is a senior associate in Reed Smith's Intellectual Property, Information and Innovation Group and focuses her practice on patent and trade secret litigation.