Republished with the permission from the Federal Bar Association Northern District of Ohio Spring Newsletter
This article constitutes the first of a multi-part series which will analyze how recent Sixth Circuit Court of Appeals and Ohio Federal Courts address and analyze the Defend Trade Secrets Act, 18 U.S.C. § 1836, et seq. (“DTSA”) and the Ohio Uniform Trade Secrets Act, Ohio Rev. Code § 1333.61, et seq. (“OUTSA”), respectively, since the enactment of the DTSA in 2016. This article will address the basic elements of trade secret claims including the definitions of “trade secret”, “misappropriation” and “improper means”. Subsequent articles will address remedial sections of the DTSA which are unique to the DTSA, and which are not found in the Uniform Trade Secret Act (“UTSA”) statutes, including the seizure and whistleblower provisions of the DTSA, respectively.
I. Introduction
The landscape of intellectual property protection in the United States has been notably transformed since the enactment of the DTSA in 2016. This legislation provided a new federal framework for the protection of trade secrets, complementing existing state laws, particularly those based on UTSA, on which OUTSA is based. As businesses navigate the complexities of trade secret protection in an increasingly competitive and technologically driven environment, understanding the interplay between the DTSA and state laws is essential. This article will explore how the DTSA has been applied alongside state UTSA statutes, and particularly OUTSA, in recent years.
The DTSA was enacted in 2016 to create a federal cause of action for misappropriation of trade secrets, addressing concerns about inconsistent state laws and the challenges faced by U.S. companies in safeguarding their intellectual property. The statute of limitations is three (3) years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. 18 U.S.C. § 1836(d). Since its enactment in 2016, “the number of trade secret cases filed in district court[s] each year has remained above pre-DTSA levels.” 2024 Trade Secret Update: A Look at Recent Trade Secret Developments and Trends, WilmerHale, July 19, 2024.
A. Key New Features of the DTSA include:
- Federal Jurisdiction: The DTSA allows for civil lawsuits in federal court, providing a uniform platform for trade secret litigation.
- Seizure of Property: The Act allows for ex parte seizure of property in extraordinary circumstances to prevent the dissemination of trade secrets.
- Whistleblower Protections: Individuals who disclose trade secrets in reporting violations to government officials or law enforcement are protected from liability.
B. Early Legislative History of the DTSA
The early legislative history of the DTSA is rather sparse, but what does exist is both interesting and informative. One of the most notable takeaways from the DTSA’s legislative history “was filling out the ex parte seizure procedure, cribbed from the Lanham Act, with some modifications….” A Legislative History of the Defend Trade Secrets Act of 2016, John Cannon, May 20, 2016. In respect of the ex parte seizure procedure, the Senate and House reports for S. 1890 “express that the remedy is to be used in ‘extraordinary’ circumstances and then provide some description of situations that constitute ‘extraordinary’ and those that don’t.” Id.
An example where the ex parte seizure procedure would not be appropriate include where “an injunction under existing rules of civil procedure would be sufficient.” Id. An example where the ex parte procedure would be appropriate include “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.”[1] Id.
As a general matter, it is important to note that the legislative history from the passage of the law is likely not the end of the ongoing development of the legislative history of the DTSA. It is also important to note, as a further general matter, that “[t]he DTSA incorporates much of the UTSA’s substance, with some stylistic differences, elements of the Lanham Act’s seizure provisions and amends the Economic Espionage Act, with which it shares some definitions, the most notable being its definition of a trade secret.” Id. Although beyond the scope of this article, it may be important to investigate the legislative history of these other laws as well to fully flesh out Congressional intent relative to the DTSA.
II. The UTSA: State-Level Framework
The UTSA was first introduced in 1979 and has served as a model for state legislation protecting trade secrets. While many states have adopted the UTSA, their specific implementations can vary. The UTSA establishes definitions, protections, and remedies for trade secret misappropriation at the state level. Key provisions of the UTSA include:
- Definition of Trade Secrets: The UTSA generally defines trade secrets as information that derives economic value from being kept secret and is subject to reasonable efforts to maintain its secrecy.
- Misappropriation Standards: The UTSA outlines what constitutes misappropriation, including acquisition through improper means and disclosure of trade secrets by individuals who have a duty to maintain secrecy.
III. Recent Sixth Circuit and Ohio Federal Case Interpretations of DTSA and OUTSA
Since the enactment of the DTSA, the relationship between federal and state trade secret protections has been an area of active litigation and legal interpretation. The DTSA does not preempt state trade secret laws, allowing plaintiffs to bring claims under both frameworks. This dual avenue can provide plaintiffs with strategic advantages, but it also introduces legal complexities. Businesses can now choose whether to pursue claims under the DTSA or state law, depending upon various factors such as the forum, the specific allegations, and the desired remedies. This concurrent jurisdiction means that cases often involve arguments rooted in both federal and state law, presenting challenges in legal strategy and judicial interpretation. For instance, the DTSA’s new provision concerning ex parte seizure requires a plaintiff to demonstrate that such seizure is necessary in “extraordinary circumstances” to prevent dissemination of trade secrets.
In interpreting the DTSA and OUTSA, respectively, the Sixth Circuit construes the definitions of “trade secret”, “misappropriation”, and “improper means” generally the same:
Magnesium Machine [Plaintiff] alleges that Terees and McDonald Hopkins [Defendants] misappropriated a trade secret in violation of the Defend Trade Secrets Act of 2016 … the Ohio Uniform Trade Secrets Act … and the Oklahoma Uniform Trade Secrets Act …. Misappropriation is an essential element of all three statutes, and it is defined the same way….
Magnesium Machine, LLC v. Terves, LLC, 2021 WL 5772533 (6th Cir. 2021). The court went on to define “improper means” under all three statutes identically. Id. at * 3, 4.
Subsequent to the Magnesium Machine case, case law from the Sixth Circuit has been even more express in its interpretation of the basic elements of trade secret misappropriation relative to the DTSA and OUTSA, respectively. In C.R.H. Industrial Water, LLC v. Eiermann, 2024 WL 4856109 (N.D. Ohio, November. 21, 2024), the Northern District of Ohio held that “[c]ourts consider DTSA and OUTSA claims together because the definition and requirements are generally the same.” Id. at * 3. In support of this proposition, the C.R.H. case cited James B. Oswald Co. v. Neate, 98 F.4th 666, 675 (6th Cir. 2024) (considering DTSA and OUTSA claims together); and Sunjoy Indus.Grop., Ltd. v. Permasteel, Inc., No. 22-CV-1896, 2023 WL 406211, 2023 U.S. Dist. LEXIS 13257 (S.D. Ohio Jan. 25, 2023) (“Courts consider these state and federal law claims together because the definition and requirements of the OUTSA and DTSA are essentially the same.”). When analyzing the existence of a “trade secret” and “misappropriation”, courts in the Sixth Circuit, including Ohio, analyze these elements the same way under both the DTSA and OUTSA. See Tervees, supra, at * 3, 4.
Other Ohio federal cases are also clear that the definition and requirements of the DTSA and OUTSA are essentially the same. See Hi-vac Corporation vs. Coley, 2024 WL 4266014 (S.D. Ohio, September 23, 2024) at * 6 (“Courts consider these state and federal law claims together because the definition and requirements of the OUTSA and DTSA are essentially the same.”) (quoting Sunjoy Indus. Group., Ltd., supra).
Inasmuch as the Sixth Circuit and Ohio Federal Courts interpret and apply the basic elements of trade secret misappropriation claims using essentially the same definitions and standards under both the DTSA and OUTSA, citing Ohio state case law relating to OUTSA claims – when necessary to litigate a point of law in connection with a DTSA claim – should at least be persuasive to an Ohio Federal Court. This could serve as a helpful tool, when necessary, in litigating DTSA claims in Ohio Federal Courts. The next article in this series will discuss how the Sixth Circuit and Ohio Federal Courts have applied the extraordinary seizure remedy – which is included in the DTSA, and which is unique to the DTSA.
[1] Of course, one could argue that imminent disclosure of a trade secret to a third party could be addressed by a TRO, and thus not be appropriate for the “extraordinary” remedy of ex parte seizure; but that is an argument to be addressed in a subsequent article.
