On January 6, 2016, the U.S. District Court for the Northern District of California issued one of its first decisions interpreting the ex parte seizure provisions found in the recently enacted Defend Trade Secrets Act of 2016 (DTSA).
DTSA Background
The DTSA, which provides private litigants the right to sue (and be sued) in federal court for trade secret misappropriation, is unique from state statutes modeled on the Uniform Trade Secrets Act in that it allows the court, on an ex parte basis, to authorize the civil seizure of property necessary to prevent the propagation or dissemination of trade secrets. The civil seizure procedures allow a litigant to request that alleged trade secrets be seized by the court and kept in court custody during the course of litigation. The court must make specific findings in the seizure order indicating that the order is necessary to prevent dissemination of a trade secret, including that (1) a temporary restraining order or another form of equitable relief is inadequate; (2) an immediate and irreparable injury will occur if the seizure is not ordered; and (3) the person against whom seizure would be ordered has actual possession of the trade secret and any property to be seized. If a seizure order is issued, the court must take custody of and secure seized materials and hold a seizure hearing within seven days. An interested party may file a motion to encrypt seized material and a party harmed by a wrongful or excessive seizure may move to dissolve or modify the order and may also seek relief against the party that applied for the seizure order.
Case Background
In its recent case, OOO Brunswick Rail Mgt., et al. v. Sultanov, et al., No. 5:17-cv-00017 (January 6, 2017), the Northern District of California declined to issue a DTSA seizure order. The defendants were former employees of Brunswick Rail Management company. Brunswick alleged that after noticing “unusually secretive” behavior from one of the defendants, it investigated his work email and discovered that he had sent several confidential documents to his personal email account without authorization; he then deleted the sent messages and emptied his trash folder. The employee also refused to return his company-owned phone and laptop. Brunswick’s investigation also revealed that the employee had been communicating with a former employee (also a defendant) and one of Brunswick’s creditors, which was explicitly prohibited. There was evidence that the former employee had also improperly received and forwarded to the creditor certain of Brunswick’s confidential information. Brunswick sued under the DTSA and sought a seizure order, along with a stricter preservation order, expedited discovery, a temporary restraining order (TRO), and a preliminary injunction.
The Court’s Order
After concluding that Brunswick had satisfied the elements necessary to issue a stricter preservation order, the court declined to issue a seizure order. The court found that its preservation order, along with its directive that the employee not access the disputed devices and the requirement that the employee bring the devices to the next court hearing, was sufficient protection of the evidence. The court also declined to grant expedited discovery, but issued a TRO prohibiting the defendants from using, disclosing, or disseminating the plaintiffs’ confidential, proprietary or trade secret information.
Lessons Learned
This decision reflects the court’s caution when using this significant new tool. Indeed, the drafters of the DTSA devoted enormous time to setting forth specific standards that must be met before a court can exercise this power, including the inadequacy of other forms of equitable relief. Here, the court made clear that its heightened preservation order, along with its order not to access or modify the disputed devices were adequate alternate forms of equitable relief. Companies considering the use of the DTSA’s seizure provisions or faced with the threat of the seizure provisions should carefully and thoroughly analyze whether other forms of equitable relief will be deemed adequate. Based on this early decision, it appears that courts will approach the use of the seizure provisions judiciously.
