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New Frontiers in Trade Secret Litigation

May 7, 2021 by in "Two Minute Takeaway"

Welcome to the Wild West of Trade Secret Litigation…

The federal Defend Trade Secrets Act of 2016 created a powerful new preliminary remedy allowing plaintiffs to enlist federal marshals to seize trade secret information from defendants. 

Plaintiffs may go to federal court — without providing defendant prior notice — for an order dispatching federal marshals to seize trade secrets from defendants.  In practice, this powerful new remedy is more akin to sending a posse after an outlaw than litigating under the Federal Rules of Civil Procedure.  Armed federal marshals show up, unannounced, forcefully enter defendant’s business, residence, or both, and search for, and seize, every electronic device and account in defendant’s possession or control.

An Underused Remedy

In the five years that the DTSA has been on the books, plaintiffs have sought seizure in only twenty reported cases.  In the First, Second, and Third Circuits plaintiffs have pursued ex parte seizure only twice.  But courts have been receptive to ordering seizure when asked to do so.

Seizures are rough justice.  Seizure orders cover computers, laptops, tablets, smart phones, computer disks, and thumb drives as well as all remote storage accounts such as DropBox or Google Cloud.  The 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 privileged information and 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, this new 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 dispatched marshals immediately to seize and duplicate all electronic information stored at defendant’s suburban Utah home.

The Solar Connect order directed marshals to seize virtually every byte of electronic data in defendant’s home, providing:

“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 similar 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 plaintiffs 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 NY counsel has rarely sought seizure in the five years the DTSA has been in effect.  Perhaps this reticence is due to a failure of imagination.  Federal courts typically strain to protect litigants’ rights, so it is somewhat difficult to imagine that a court might dispatch marshals to conduct sweeping seizures of a defendant’s entire electronic footprint without advance notice.  Maybe New York litigators need to get more aggressive and catch up with their Western counterparts.