Hunton Employment & Labor Perspectives

The recently enacted Defend Trade Secrets Act of 2016 (DTSA) provides a new form of expedited relief in federal court for owners of misappropriated trade secrets through an ex parte seizure of property. In “extraordinary circumstances,” DTSA permits a court to issue an order to authorize law enforcement officials to seize property – without advanced notice to the accused – in order to prevent the propagation or dissemination of the trade secret. The utilization of this ex parte seizure does not come without risk. Section 2(b)(2)(G) provides that in the case of wrongful or excessive seizure, a person who suffers damages has a cause of action against the applicant and can seek reasonable attorneys’ fees, damages for lost profits, cost of materials, loss of good will and punitive damages.

By limiting the use of the ex parte application to “extraordinary circumstances,” Congress intended for the seizure “to be used in instances in which a defendant is seeking to flee the country or planning to disclose the trade secret to a third party immediately or is otherwise not amenable to the enforcement of the court’s orders.” Section 2(b)(2)(A)(ii) sets out further requirements that must be satisfied in the ex parte application before the court can issue a seizure order. Based on an affidavit or complaint, the applicant must demonstrate clearly through “specific facts” that:

1.  A preliminary injunction, restraining order, or other form of equitable relief would be inadequate “because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order”;
2. An “immediate or irreparable injury” would occur without an ordered seizure;
3. The harm in denying relief to the applicant outweighs any harm to the defending party and any third party;
4. The applicant will likely succeed in showing that the information is a trade secret and the person against whom seizure would be ordered misappropriated or conspired to misappropriate the trade secret through improper means;
5. The person against whom seizure is ordered has actual possession of the trade secret and property to be seized;
6. The matter to be seized is “described with reasonable particularity” and the applicant is reasonably able to identify the location of the seizure;
7. The person subject to the order “would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to the person;” and
8. The applicant has not publicized the requested seizure.

In addition to ensuring “extraordinary circumstances” are met, these requirements protect third parties from seizure. Limiting the reach to trade secrets misappropriated through improper means “is intended to prevent the seizure provision from being used against a party who may know it is in possession of a trade secret that was misappropriated but did not use, or conspire to use, improper means to acquire such trade secret.” Further, the requirement of actual possession protects operators of data servers or online intermediaries from seizure even though they may be storing a trade secret because “the data stored upon them would not be in the actual possession of the defendant a seizure against whom was ordered.” Already existing trade secret laws provide a remedy in these circumstances including the issuance of a third-party injunction or other form of equitable relief.

Once the court has determined the requirements have been clearly met by the applicant, it is permitted to issue an order that must provide for the narrowest seizure of property, provide specific guidance to law enforcement officials in executing the order, and set a hearing date within seven days of the date of issuance. The court must also set forth a number of protective measures for both the applicant and the accused including a protective order for the seized property to prevent disclosure of the trade secret and require the applicant to provide “the security determined adequate for the payment of damages that any person may be entitled to recover as a result of a wrongful or excessive seizure.”

While the relatively new nature of the seizure provision in the Defend Trade Secrets Act leaves the extent of the protections and liabilities untested in courts, the seizure mechanism is now available to preemptively prevent wrongful dissemination of a trade secret to all who meet the above requirements.