Quirky Question #281: Deploying the DTSA

Question: We believe our former employee recently stole some of our trade secrets and went to a competitor.  Can we rely on the Defend Trade Secrets Act to bring suit in federal court?

Answer: By Joel O’Malley, Jessica Linehan, and Gabrielle Wirth

Joel O'Malley

Joel O’Malley

Jessica Linehan

Jessica Linehan

Gabrielle Wirth

Gabrielle Wirth

Yes!  A court recently granted an injunction on the basis of the Defend Trade Secrets Act, possibly the first court to do so.  In Henry Schein v. Cook, 2016 U.S. Dist. LEXIS 76038 (N.D. Cal. June 10, 2016), the plaintiff Henry Schein, Inc. (“HSI”) sued its former employee Ms. Cook.  According to HSI, before Ms. Cook left HSI’s employment, she forwarded to her personal email customer practice reports, equipment inventory reports, price quotations for prospective customers, and equipment proposals.  Also according to HSI, Ms. Cook was able to take sales and ordering data from the company’s computer system.

The court granted HSI’s request to enjoin Ms. Cook from using its trade secrets and ordered her to preserve evidence.  While the court’s opinion is short, it provides some early lessons on how employers can use the DTSA to their advantage.

First, asserting the DTSA claim allowed HSI to get into federal court.  HSI’s other claims were either California statutory claims (California’s trade secret statute, unfair competition law, and penal code) or state common law claims.  As a result, HSI was able to obtain a decision from the federal court in the San Francisco area, rather than litigating before state courts which might be regarded as more employee-friendly.

Second, HSI relied on Ms. Cook’s confidentiality agreement with HSI to obtain its injunction under theshutterstock_153565460 DTSA, even though Ms. Cook signed that agreement before the DTSA was enacted, such that it would not include the DTSA’s required immunity language informing employees of their right to disclose trade secrets under certain circumstances.  The absence of that immunity notice will preclude HSI from recovering exemplary damages or attorneys’ fees, but it didn’t stop HSI from asserting a DTSA claim altogether.

Third, the federal court looked to established Ninth Circuit case law applying California’s state trade secret statute to assess whether the materials Ms. Cook allegedly stole were trade secrets under the DTSA, and whether Ms. Cook used “improper means” to obtain the trade secrets.  The court’s opinion reaffirms the similarity in how the DTSA defines and protects trade secrets with the uniform trade secret statues adopted in many states.

Finally, the old rules do still apply.  HSI asked the court to order Ms. Cook to create images of all her personal electronic devices to turn them over to a forensics investigator. Notably, HSI did not rely on the DTSA’s ex parte civil seizure mechanism, which allows in “extraordinary circumstances” a court to order the seizure by federal marshals, without notice to the defendant, of “property necessary to prevent the propagation or dissemination” of the stolen trade secrets.  The court declined to order forensic imaging of Ms. Cook’s devices, holding that it was overly intrusive and unnecessary given the court’s other order for Ms. Cook to preserve all relevant evidence, including evidence in electronic form.  Thus, despite the DTSA’s greater protections for employers, courts will still balance the harms when determining what sort of injunction to enter.

We will continue to follow how courts address trade secret issues by applying the DTSA!

Jessica Linehan

About Jessica Linehan

Jessica is a Partner in the Labor and Employment group. She advises clients on a wide variety of matters including employment agreements, non-competition issues, wage and hour compliance, reasonable accommodation......

Gabrielle Wirth

About Gabrielle Wirth

Employers turn to Gabrielle for guidance on how they can comply with the technical employment laws in California, Montana and nationwide while meeting their business needs. Her successful trial experience......

Dorsey & Whitney

About Dorsey & Whitney

Dorsey is a business law firm, applying a business perspective to clients' needs. We make it our first priority to know the context in which you do business - your......

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