Be Careful What You Wish For

July 18, 2016

The new Defend Trade Secrets Act for the first time lets you file your case in federal court. but just because you can do it doesn't necessarily mean you should. Federal court provides a lot of advantages for certain kinds of disputes. But there can be a downside.

The easy decision is in a case that the DTSA was designed for, where some of the actors are in other states or countries. Federal courts give you nationwide service of process and uniform rules of procedure that can streamline litigation. Federal judges, with their experience handling cross­border cases, are better suited to resolving complex issues of personal jurisdiction. And if you find out about a threatened theft of valuable data before it happens, the new ex parte seizure provision of the DTSA can give you a powerful remedy.

But federal court is not for everyone. Its judges are "single-assignment," meaning that they have a case from beginning to end, and therefore also have a motive to end it early if it lacks substance. As a result, federal judges (who by the way are not getting any additional resources from Congress along with their new trade secret jurisdiction) often demand more specificity in pleadings and in trade secret definitions, which can end up looking like patent claims. State courts, in contrast, usually run on a "departmental" system, where early issues are handled by specialist judges, giving close cases a better chance to squeak through to trial, and giving plaintiffs more leeway in describing the subject matter of their claims.

Federal judges may be more inclined to transfer venue. And when it comes to substantive issues, the trade secret plaintiff's requirement to demonstrate its "reasonable efforts" to protect its data may get a more skeptical eye. Once a federal judge granted a defense summary judgment because the "confidential" legend on plaintiff's documents was not in a big enough font! So even after the DTSA, trade secret owners need to have an open mind about their strategy in deciding whether, and where, to litigate.

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