This is a guest post from our colleagues in Reed Smith’s Intellectual Property, Information and Innovation Group. For additional reading on the Defend Trade Secrets Act, please see our prior Employment Law Watch blog post, “New Immunity Given To Employees Who Disclose Employer Trade Secrets.” 

Following President Obama’s signing of the federal Defend Trade Secrets Act (“DTSA” or the “Act”) into law last week, parties are beginning to file lawsuits asserting claims under the DTSA. As widely reported, before the DTSA’s enactment, civil trade secret legislation was solely a creature of state law.  Consequently, absent another basis for federal jurisdiction, parties could only bring a civil trade secret claim in state court. The DTSA dramatically changed trade secret litigation practice by opening the door to federal court through creation of a federal civil trade secret misappropriation cause of action.

Application of the DTSA, however, is not retroactive. By the express language of the Act, it only applies to acts of misappropriation occurring on or after May 11, 2016, the date on which it was enacted.

Earlier this week, on May 16, 2016, two complaints asserting claims under the DTSA were filed in the Southern District of Florida. See Bonamar Corp. v. Turkin, No. 1:16-CV-21746-UU (“Bonamar”); M.C. Dean, Inc. v. City of Miami Beach, Florida, No. 1:16-cv-21731-CMA (“M.C. Dean”). While both complaints contain allegations regarding misappropriation that commenced before the DTSA’s enactment, they also allege that acts of misappropriation are “ongoing” or “continuing.” The question of whether the DTSA covers the misappropriation alleged in these complaints may give rise to jurisdictional challenges.

The DTSA defines misappropriation to include improper acquisition or improper use or disclosure. But misappropriation is often not a single, one-time event. A common fact pattern—present in both the Bonamar and M.C. Dean complaints—involves the initial improper acquisition of a trade secret (e.g., a departing employee surreptitiously downloads trade secret files as he prepares to leave for a competitor), followed by its improper use or disclosure (e.g., the departed employee using prior employer’s trade secret files to solicit business for his new employer).

As alleged in the Bonamar and M.C. Dean complaints, there may be scenarios where a defendant has commenced misappropriation by improperly acquiring (and/or using or disclosing) a trade secret before the DTSA was enacted, but continues to misappropriate—that is, continues to use—the trade secret after the DTSA’s enactment. Although the DTSA addresses the concept of “continuing misappropriation,” it only does so in the subsection of the Act that defines the statute of limitations, noting that a “continuing misappropriation constitutes a single claim of misappropriation.” The DTSA is silent on whether the DTSA applies to acts of continuing misappropriation where the misappropriation commenced before the DTSA’s enactment.

Many states have codified their own versions of the Uniform Trade Secrets Act (“UTSA”), upon which the DTSA was based, and have addressed this issue expressly in their statutory scheme. One recent example is Texas, which adopted the Texas Uniform Trade Secrets Act (“TUTSA”) in September 2013. Unlike the DTSA, TUTSA expressly states that continuing misappropriation that commenced before enactment is not covered by TUTSA. See 2013 Tex. Sess. Law. Serv. Ch. 10 (S.B. 953 § 3). California’s Uniform Trade Secrets Act (“CUTSA”) also explicitly addresses whether continuing misappropriation claims are covered by the law.  See Cal. Civ. Code § 3426.10. In contrast to TUTSA, CUTSA states that with respect to continuing misappropriation, the part of the misappropriation occurring before CUTSA’s enactment would not be covered by CUTSA, whereas the part occurring on or after the CUTSA enactment date would.  See id.

As litigation under the DTSA continues to gain steam in the coming months, the issue of continuing misappropriation may provide fertile ground for litigation regarding jurisdictional challenges. It remains to be seen whether courts will find jurisdiction over continuing misappropriation claims predicated on misappropriation that commences before the DTSA’s enactment.

For additional information regarding the DTSA, please see Reed Smith’s recent Client Alert, “The Brand New Defend Trade Secrets Act of 2016 – What You Need to Know.”