Rights of Trade Secret Owners in Federal Cases

by Dennis Crouch

By longstanding tradition, US courts are open, transparent in proceedings, and transparent in judgment.  The FISA courts that I cover in my internet law course are so controversial because they are so contrary to that tradition.  Courts are also sensitive to the disclosure of trade secrets and, in the past, have liberally allowed parties to file documents under seal to avoid destroying those rights.  Most recently, for instance, the Supreme Court permitted Shukh to file redacted public briefs to avoid discussing secret information regarding his invention rights. See Supreme Court Rule 5.2.

The Defend Trade Secrets Act (DTSA) includes an new provision added to the Economic Espionage Act (EEA) that, depending upon how it is interpreted, may govern how district courts handle trade secret information in all cases. The new section will be codified as 18 U.S.C. 1835(b) and reads:

(b) Rights Of Trade Secret Owners.—The court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential. . . .

Courts already liberally allow parties to file documents under seal – so that doesn’t provide the entire impact of the provision.  Rather, the provision’s importance is that it extends beyond briefs being filed by parties and instead reaches disclosures at trial and court opinions.   Thus, the statute presumably prevents a court from disclosing a trade-secret in its opinion without first providing the trade-secret owner with the opportunity to brief the issue of disclosure.  In addition, it provides non-parties with a right to request (under seal) non-disclosure of their trade secret rights.

Unlike other provisions in EEA/DTSA, this “right” is not expressly limited to actions arising from the EEA/DTSA. Rather, it may be read broadly as a provision providing procedural rights of trade secret owners in all federal cases.  If so, it will effectively serve as a form of trade secret privilege and will end-up being the most cited aspect of the new law.

The DTSA was presented to President Obama for his signature on April 29, 2016 and should become law within the week.

11 thoughts on “Rights of Trade Secret Owners in Federal Cases

  1. That’s an awkward way to re-write the FRCP and local rules with respect to protective orders and so forth. Arguably, the trade secret owner need not respond to a discovery request until given an opportunity to present argument why it should not be disclosed. It will be interesting to see where this goes.

  2. It will be interesting to see during its evolution, how useful case law, regarding WHAT qualifies as a trade secret, will be. If trade secrets are kept secret, a bias sample in “exemplars” will eventually accumulate, as we will eventually have plenty of disclosed examples in the case law of what does not qualify as trade secrets but will have very few concrete details about what was found to qualify as a trade secret (assuming they are kept under wrap). For finding the “positives” we may be left with the task of applying general principles formulated by the case law rather than merely looking for similarity in specific trade secret fact scenarios of precedent. Let’s hope the general principles amount to “substantially more” than “I know a trade secret when I see it”.

    [[Perhaps at the state level this has already been resolved or deemed a non-issue]]

      1. I suppose we can only hope “good” case law from various states will inform arguments and reasons respectively of advocates and the court(s) at the federal level.

        1. I think that part of the problem is that “good” for one state may not be “good” for another, and since the Federal level is not meant to supplant any particular state item, being “informed” by noncongruent state law cannot develop “good” Federal law (Federal common law).

          This was one of the things pointed out awhile back: without Federal preemption, you cannot be simplifying the law here: you are not removing any layers, and instead you are adding a new layer.

          1. I had stated “inform arguments” then “reasons”… as in the lawyers would be looking for resources to formulate their arguments.

            Do you see the substance in arguments over what a trade secret is will start more or less as though there were never any state laws or legal concepts regarding such things?

            1. I contrast “reasons” with the fact that such “reasons” already vary from state to state and offer no solidifying basis for a Federal approach.

              It is not that there are no reasons, it is that you have too many disparate ones. With the Federal approach in this instance of not preempting, you have no force with which to decide on a unifying reason.

              1. I suppose each advocate (and consequently each judge)will “pick and choose” something to submit (or rule)… from any source he or she believes relevant and persuasive but only for its substance in the new context and the case at hand and not for any deference to its origin.

                1. Sure / and that will then start to produce a body of federal common law (least wise pertaining to the new layer of the Federal cause of action).

                  But that still does not reach the point you raised (or more precisely, my counter point to your point): disparate state by state law cannot “inform” the new Federal law. If there is a disparity, then a Federal choice will enshrine one at the expense of the other. You cannot serve both masters. Put yourself in the shoes of the “losing” state and their “lost” jurisprudence for a minute. How do you feel with an alternative Federal cause of action that in essence nullifies your state view? The fact that the new layer is an alternative is problematic for EVERY “losing” disparate state view. It would have been better (and met the supposed “simplifying” aspect) if the Federal law just went ahead and occupied the space and preempted the various (and non-cohesive) state by state laws.

                2. If I were a defendant I would not be happy because at first blush rights are expanded. To whatever extent rights at the state level are different from those at the Federal level, the addition of the rights at the Federal level only give a plaintiff a second avenue to choose from.

                  In summary infringers of rights will not be able to get away with it as easily … is this a reasonable assumption?

                3. is this a reasonable assumption?

                  Depends.

                  On a lot of things.

                  But perhaps one thing (to the point here being discussed) is that what would be contrary to a particular State’s jurisprudence is now open because the new Federal item is just “another layer.”

                  The “wolf in sheep’s clothing” here is that the optional layer is being peddled as not impacting state law – and it does not as far as the state law remains on the books – but most definitely impacts state law whenever a divergence is present and the optional Federal cause of action is taken (a cause not available per that divergent State jurisprudence).

                  Bottom line is that the States DO NOT have a unified and cohesive jurisprudence and this type of “creeping Federalism” is very much at play.

Comments are closed.