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Hidden Memory Card (inspired by ABC's Designated Survivor, 1:9, "The Blueprint," aired Dec. 7, 2016)
Hidden Memory Card (inspired by ABC’s Designated Survivor, 1:9, “The Blueprint,” aired Dec. 7, 2016)

Engineers from your China subsidiary just joined a competing company which has begun using your trade secrets.  Can you sue in the US and avoid the uncertainty and expense of seeking relief in a Chinese court?  The answer is that both federal Defend Trade Secrets Act (DTSA) of 2016 and California’s version of the Uniform Trade Secrets Act (CUTSA), under the right circumstances, may be extended extraterritorially to reach misappropriation outside of the US.

Perhaps surprisingly, it may be harder to do this under the federal law, which expressly provides that it applies to conduct outside the US, than under the California law, which is silent on the subject.  Let’s break this down.

Extraterritorial theft of trade secrets by insider employees or business partners in China is a significant problem as evidenced by the investigation in International Trade Commission cases Amsted v. TianRui (disclosure and use of US company’s trade secrets in China) [the 2011 Federal Circuit decision on appeal] and In re Certain Rubber Resins (same) [the 2014 ITC determination].  The problem reflects the reality of the current business environment, which is global and digital; technology owned by US-based companies is often shared with employees or business partners located outside of the US and it is not unusual for them to move between competitors.
Continue Reading Extending US Trade Secret Law to Reach IP Theft in China

Departing Employee imageAlarms sounded when John Absmeier, technical director of Delphi Automotive’s Silicon Valley autonomous vehicle project, announced he was leaving to join Samsung’s Silicon Valley innovation center where he would lead a self-driving car technology team.  They grew louder upon Delphi’s determination that Absmeier downloaded hundreds of thousands of company files and folders onto personal devices…

Although many may be asserted, quite often far less warrant protection
Although many may be asserted, quite often far less warrant protection

The question is whether it is possible to get a court to enter partial summary judgment before trial on some but not all of the trade secrets that the defendant is accused of stealing.

As discussed in the Sept 28 post, the answer is that this may not be possible if the lawsuit is filed in California state court.

But if the trade secret lawsuit is filed in federal court, the answer is yes.  In federal court, it is easier to weed out before trial alleged trade secrets that do not satisfy the legal requirements for protection.

Why should we care?  For each allegedly misappropriated trade secret that is allowed to be argued at trial, the costs incurred in either proving up or rebutting the claim run in the tens if not the hundreds of thousands of dollars spent on attorneys, experts and discovery, not to mention the significant time the court and the jury must devote to determining liability on each such claim.  In other words, the potential savings of time and money to all concerned (court, jurors, and parties) from taking fewer trade secrets to trial are huge. Also, settlement before trial is much more likely if the parties know in advance which trade secret claims will or will not be tried.
Continue Reading You Can Get Partial SJ on Some But Not All Trade Secrets . . . In Federal Court

Not necessarily in California. The answer depends upon the unsettled issue whether California summary adjudication rules allow courts to dismiss some but not all of the asserted trade secrets before trial.

Trade secret claims brought by a technology company typically allege theft of not one but many trade secrets.  The law recognizes as separate and specific trade secrets not just a particular technology, but also the underlying research, study, tests or investigation relating to this technology.  For example, in Perlan Therapeutics, Inc. v. Superior Court, 178 Cal. App. 4th 1333, 1345 n.10 (2009), the court found that “Perlan’s eight purported trade secrets are: ‘(1) the Charles Invention, (2) Perlan’s Protein Multimerization Process, (3) Perlan’s novel idea [involving sialidase to] create a drug to combat the flu, and (4) all related research, (5) development, (6) advancements, (7) improvements and (8) processes related thereto.’”

Each of the numerous alleged trade secrets must satisfy certain requirements before they are deemed protectable in the eyes of the law.  A trade secret must be described with sufficient particularity and have independent economic value derived from having been kept secret.  And even if a particular trade secret is deemed legally protectable, there is no actionable theft (misappropriation) unless the trade secret has been improperly acquired, used or disclosed.

It is very rare that all trade secrets asserted at the beginning of a case satisfy all the requirements.   There often are many clunkers among the asserted secrets and this is sussed out through the development of the case leading up to the trial.   Furthermore, the identity of the bad trade secrets is or at least should be quite clear to the parties and the court following expert discovery, and in some cases even earlier in discovery.  Limiting trial to those trade secrets that have some basis in law or fact can save the parties hundreds of thousands of dollars in attorney and expert fees and costs otherwise incurred to prosecute or defend the bad trade secrets on top those that might have some merit.  Precious and scarce court resources are saved for resolving legitimately asserted trade secrets (and are not diluted or wasted on resolving the bad ones).

In California, it may not be possible to obtain partial judgment on some but not all asserted trade secrets.  Lawsuits brought in California court for misappropriation of trade secrets under California law (California Uniform Trade Secrets Act, Civ. Code, § 3426 et seq.) are governed by state procedural rules for summary judgement and summary adjudication.  Code Civ. Proc., § 437c subd. (a) (summary judgment) and (f) (summary adjudication).  Summary judgement terminates the entire action.  Summary adjudication is directed to some but not all “causes of action,” such that following entry of summary adjudication the case proceeds to trial on the remaining causes of action.  You therefore can’t get summary judgment on some but not all trade secret claims, but you might get summary adjudication if the challenged trade secret claim is deemed a “cause of action” within the meaning of the rule.
Continue Reading Can You Get Partial SJ on Some But Not All Trade Secrets?

Jury trial on reasonable royalty? Courtesy Google Images
Right to jury trial on reasonable royalty damages differs depending on whether suit brought under DTSA or California version of UTSA

The new Defend Trade Secrets Act (DTSA) became law on May 11, 2016 and applies to any misappropriation that occurs on or after that date.

Although the DTSA creates a federal, civil remedy for trade secret misappropriation, it does not preempt state law.  This is going to encourage serious forum shopping, including, among other things, over the right to jury trial.

The federal law cedes to the jury the determination of all possible monetary damages claims.  In comparison, the version of the Uniform Trade Secrets Act (UTSA) adopted by California (CUTSA), while giving the jury the issues of lost profits and unjust enrichment, reserves for the trial judge the determination whether and to what extent to award reasonable royalty damages.
Continue Reading Unlike California, New Federal Trade Secret Law Offers Right to Jury Trial on Reasonable Royalty Damages

Late yesterday, the House of Representatives joined the Senate in passing a sweeping new statute that creates a new federal civil cause of action for trade secret theft.  The new statute, called the Defense of Trade Secrets Act (DTSA), can be found here and is expected to be signed into law by the President within the next few days.

Where will we first see the effects of the new federal trade secret law?  Answer: in the hundreds (thousands?) of currently pending state court trade secret misappropriation cases.  Soon after the DTSA becomes effective there will be a significant increase in federal district court decisions being relied upon in state courts to explain and construe existing state trade secret statutes.
Continue Reading Wave of Federal Trade Secret Decisions Soon to Hit State Courts

DTSA does not block employment based merely on inevitable disclosure (courtesy Google images)
DTSA does not block employment based merely on inevitable disclosure (courtesy Google images)

Proposed legislation creating a federal cause of action for trade secret misappropriation is on the fast track to becoming law, as described in James Pooley’s excellent post What You Need to Know About the Amended Defend Trade Secrets Act [link], January 31, 2016 Guest Post, Patently-O.  Referred to as the Defend Trade Secrets Act (“DTSA”), the legislation was favorably reported out of the Senate Judiciary Committee on January 28, 2016.

For those seeking to catch up on these developments, the recent posts and articles by Mr. Pooley and his colleagues are a great place to start learning the salient characteristics of the new law, including the rejection of the idea that an employee should be blocked from taking a new job based on the doctrine known as “inevitable disclosure.”  The DTSA’s rejection of “inevitable disclosure” warrants a closer look; it means the DTSA embraces California’s robust policy favoring free mobility of employees between jobs.  Let’s break this down.
Continue Reading New Federal Trade Secret Law is Pro Employee Mobility and Rejects Inevitable Disclosure