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DTSA Seizures: the Wild West of Trade Secret Law

May 7, 2021 by in "Two Minute Takeaway"

Welcome to the Wild West of Trade Secret Seizure Litigation

The federal Defend Trade Secrets Act of 2016 (the “DTSA”) gives plaintiffs a powerful new right to seek ex parte seizure of trade secret information.  A plaintiff may go to federal court — without providing defendant notice or opportunity to be heard — to obtain an order dispatching federal marshals to seize trade secrets in defendant’s possession.  It’s a powerful remedy more akin to sending a posse after an outlaw than litigating a business dispute under the Federal Rules of Civil Procedure.

The DTSA provides that courts may authorize ex parte seizure only under “extraordinary circumstances.”  A review of the reported cases, however, suggests that it is counsel — rather than the courts — who are reticent to entertain this extraordinary relief. 

A Powerful but Underused Remedy

In the five years that the DTSA has been on the books, plaintiffs have sought ex parte seizure in only twenty cases.  Indeed, in the First, Second, and Third Circuits — covering the entire northeastern United States — plaintiffs have pursued DTSA ex parte seizure only twice.  It makes one wonder: What problem was Congress attempting to solve when it created this unique and problematic remedy?

Courts, however, have been receptive to granting ex parte seizures.  Courts have granted ex parte seizures in just over half the cases in which plaintiffs sought the remedy, in eleven of the twenty reported cases.  

The seizure appears extraordinary even to the jaded eyes of a trade secret attorney.  Armed federal marshals show up, unannounced, at a defendant’s business, residence, or both, and search for and seize every electronic device in defendant’s possession.

Seizure orders typically cover computers, laptops, tablets, smart phones, computer disks, and thumb drives as well as all remote storage accounts such as DropBox or Google Cloud.  Seizure orders command defendants to provide marshals with passwords to all devices and accounts or be held in contempt of court.  Marshals can seize a breathtaking amount of information, including highly personal information such as family health information having nothing to do with the pending business dispute.

Frontier Justice

Interestingly, federal courts in Utah and Oklahoma have issued five of the eleven orders granting ex parte seizures under the DTSA.  Consequently, given the element of frontier justice involved in these seizures, this practice represents both the literal and figurative “Wild West” of trade secret litigation.

The seizure order entered in the Utah case Solar Connect v. Endicott, is representative of the Waco-style relief available under the DTSA.  Based solely upon plaintiff’s ex parte application, the court immediately dispatched marshals to seize and duplicate all electronic information stored at defendant’s suburban Utah home.

Among other things, the Solar Connect seizure order provided:

“Federal law enforcement officers shall, with the assistance of the court appointed technical expert, commence or endeavor to commence the seizure as soon as reasonably possible…at Mr. Endicott’s dedicated office and home at 75 North 850 East, Lindon, UT 84042…

“Federal law enforcement officers may use reasonable force to access the home and to access any locked area…”

“Defendants and all persons at Premises…are hereby ordered to disclose and provide to the Federal law enforcement officers all computers, computer devices, and login credentials (including passwords) needed or reasonably requested for consummation of the seizure…”

“If any Defendant or other person at the seizure location refuses to provide or disclose computers, computer devices, or login credentials (including passwords) needed for consummation of the seizure, the Federal law enforcement officers may conduct a reasonable search of the premises…”

“Refusal by any Defendant or persons to cooperate with the Federal law enforcement officers by refusing to provide or disclose computers, computer devices, or login credentials (including passwords) needed for consummation of the seizure shall be held in contempt of this order and subject to appropriate sanctions…”

“Defendants and any of their employees, affiliates, contractors, other persons working for or with Defendants, and any persons at the premises where the seizure is to take place when commenced, shall be prohibited from leaving the premises or accessing any telephone, mobile phone, computer, or other computing device during the seizure…”

“State or local law enforcement officials may participate and assist in the seizure if the Federal law enforcement official(s) determine it is needed…”

Seizure orders entered in other cases contain identical provisions, seemingly following a model order.  See Axis Steel v. Prilex, Blue Star v. Coleman, Shumway v. Wright, Vice Capital v. CBD World, and AVX Corp. v. Kim

Conclusion

Given its ruthless effectiveness, it’s hard to understand why plaintiff’s counsel have not pursued DTSA ex parte seizure more often.  New York has ample trade secret disputes involving critical electronic business data for which the remedy appears ideally suited, but counsel rarely seeks seizure.  Perhaps this reticence is due to a failure of imagination.  Federal courts typically strain to protect litigants’ rights, especially in ex parte proceedings, so it is difficult to imagine them dispatching marshals to conduct sweeping seizures of defendants’ electronic footprint.  But maybe New York litigators need to get more aggressive and catch up with their Western counterparts.