October 23, 2018

The Defend Trade Secrets Act Is Not Ready for Prime Time

In my previous post, I wrote about the Senate Judiciary Committee’s hearing on the Defend Trade Secrets Act of 2015. Based on the hearing, it seems likely that the bill will more forward, but there are still a number open issues that should be addressed before the bill is ready for vote by the full Senate and House. Here are my thoughts about some of the more important issues:

 Degree of Force in executing a civil seizure order under the DTSA

The bill is silent on the amount of force that may be used in executing a seizure order. This is an issue that should be left to the district court and the Marshals Service to decide and should be determined on a case-by-case basis. Thus, the bill should be permit the use of “reasonable force.”  This language would allow a judge and the Marshals Service  to determine what is “reasonable” under the particular circumstances of the case. The Marshals Service should have the authorization to be able to determine the amount of  force necessary to execute the search so as to not endanger the lives of law enforcement or innocent bystanders, while at the same time  to obtaining the items identified in the seizure order. In some cases this may involve knocking down doors or opening locked containers if they are likely to contain the stolen trade secret information.

It should be noted that the degree of permissible force is not mentioned explicitly under the civil seizure section of the Lanham Act. See 15 U.S.C. sec. 1116(d). Courts have permitted the Marshals Service “to use all reasonable force in conducting the seizure and may open doors, locks, boxes, brief cases and containers of any type or nature to locate and identify Evidence to be seized.” Otter Products, LLC v. Anke Group Indus. 2013 WL 5910882, at *4 (D.Nev. Jan. 8, 2013). See also SATA GmbH & Co. Kg. v. Wenzhou New Century International, Ltd., (2015 WL 6680807, at *13 (C.D.Cal. Oct. 19, 2015) (“The law enforcement officers executing this Seizure Order may use all reasonable force in conducting the seizure and may open doors, locks, boxes, brief cases, and containers of any type or nature to locate and identify Evidence to be seized.”  The Otter court also required the defendant to “provide any passwords necessary to access any electronically stored documents or electronic devices;” and limited access to “any seized Evidence to” outside counsel.

 Responsibility for sorting data

The process and responsibility of reviewing and sorting the data may prove to be very difficult issues. First, with regard to sorting the data, this issue has become very contentious with regard to searching and seizing computer evidence under the 4th Amendment. While there are obvious differences between the situations, both may involve the question of comingled data. In the case of the DTSA, this may involve, for example, locating a computer file containing stolen trade secrets comingled among thousands of files that are not relevant. Should the seizure order permit the Marshals Service to seize the servers, for example, containing the single file with the stolen data for later review or should the order require that, at least, an attempt be made to remove the file with the stolen data on site. The court is in the best position to determine what is reasonable under the circumstances taking into account, for example, the type of process that it likely to be least intrusive on innocent third parties.

The issue of the identity of the party responsible for the sorting of the data should also be left to the discretion of the court which is responsible for the issuance of the seizure order. Depending on the circumstance, the court may require that the evidence be placed in the custody of a third party, who has agreed to maintain the confidentiality of the information, or in other cases, the court may order that plaintiff’s outside counsel be given custody of the information. In both of the cases cited above, the seizure orders provided that outside counsel shall retain custody of the seized items.

Are protections against wrongful or overseizure sufficient?

In both cases cited above, the courts required the plaintiff to “agree to indemnify the law enforcement officers who may assist with the seizure and hold it/them harmless form any suit, claim, cause of action, damage, loss, or injury arising from the execution of seizure described in this Order.” SATA, 2015 WL 6680807, at *13. Ottar Products (same). There is no reason that a court could not order a plaintiff to agree to similar indemnification under the DTSA.

Another issue that needs to be addressed here is the standard for determining liability for a “wrongful” seizure. The scienter level is not addressed in the bill. I do not believe that a strict liability standard should apply because such a standard would dissuade most plaintiffs from seeking a seizure order. Indeed, I think that the level should be the same as the Lanham Act that provides that a wrongful seizure cause of action shall arise only when the seizure was in “bad faith.” I think that this standard would provide sufficient disincentive to parties who may seek to obtain a seizure order for improper purposes.

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