Making a “Federal Case” Out of It
Pennsylvania courts have long recognized a claim for theft (or “misappropriation”) of a trade secret pursuant to both PA common law (judge-made law) and the PA legislature’s adoption of the Uniform Trade Secret Act.
But those are state law claims. The Plaintiff might instead prefer the “sophistication” of a federal judge (appointed by the President of the United States) hearing the dispute, versus a local state court judge. Or, perhaps, the plaintiff seeks the independence of the federal bench from local matters, where the defendant might be golf buddies with local state court judges.
Is there a federal equivalent of PA’s Uniform Trade Secret Act as to create jurisdiction in federal court?
As a matter of fact, there is.
Defend Trade Secrets Act (DTSA)
In 2016, the United States Congress passed — and President Obama signed into law — the Defend Trade Secrets Act (DTSA). Like its state law counterpart, the DTSA creates a claim for money damages or an injunction (discussed below) against the person or company who stole (“misappropriated”) or received a trade secret. A claim for enforcement of the DTSA — a federal law — automatically creates subject matter jurisdiction in federal court.
So the DTSA gets one’s trade secret dispute into federal court, now what? Will the DTSA apply any differently in substance, compared to PA state law?
A “Defend Trade Secrets Act” Claim – Defined
As it turns out, the DTSA is nearly identical to PA’s state law equivalent. For example, like the state counterpart, the DTSA will not treat just any “secret” as a protected trade secret. The DTSA requires:
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- The owner [of the alleged trade secret] to have “taken reasonable measures to keep such information secret”; and,
- The information must derive “independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”
In other words, the owner of the alleged trade secret must have done something to develop or create the information, contrasted with information found ubiquitously on the internet or known as common knowledge within an industry.
Damages Recoverable
The DTSA allows for “damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss.” 18 U.S.C. § 1836(b)(2). Moreover, the DTSA also allows the recovery of an award for the Plaintiff’s reasonable attorney fees plus sanctions for intentional conduct, just like the Uniform Trade Secrets Act as adopted in PA.
Parties Liable For DTSA Violations
As mentioned, trade secret law creates a claim for money damages, penalties, and attorney fees against the thief of the trade secret — often a former employee of the Plaintiff. But what about the recipient— or beneficiary — of the protected information, such as an outgoing employee’s new employer in the same industry? Here again, like a state law claim under Uniform Trade Secrets Act in PA, the DTSA creates a claim against the recipient of a trade secret, for misappropriation of it. The damage claim against the end-user can also include an award for unjust enrichment or the value of royalties for use of the “secret.”
Federal Rules | Temporary Restraining Order (“TRO”
Like state court, the federal courts allow for an injunction in the context of a trade secret. This is an action to prevent or “enjoin” the use of a trade secret, but only if it would prevent “irreparable” harm: i.e., damages that a monetary award cannot correct. This would include a restaurant’s true “secret recipe,” which, if known, would permanently devalue the entire brand or business.
Moreover, a plaintiff can seek an emergency injunction or temporary restraining order (“TRO”) — to immediately halt use of the “secret” — but only for true emergencies. For example, a 2022, a Pennsylvania company learned that filing for a TRO in federal court for an alleged DTSA claim does not necessarily increase one’s odds of protecting the “secret” versus proceeding in state court.
Temporary Restraining Order Requested – Robson Forensic, Inc. v. Shinsky
In Robson Forensic, Inc. v. Shinsky, 5:22-cv-1309 (E.D. Pa. Apr. 22, 2022), a company that provides expert investigative services and testimony for lawyers — Robson Forensics, Inc. — sued a former employee for allegedly taking trade secrets to a competitor. The Plaintiff filed its claims in federal court in part pursuant to the Defend Trade Secrets Act (DTSA), among other things, seeking an emergency restraining order a/k/a temporary restraining order (TRO). The federal judge, however, noted the extremely high standard to get a preliminary injunction in federal court.
Federal Procedure for a Preliminary Injunction
The Robson Forensic, Inc. court described the federal law in this area:
A party seeking a preliminary injunction must show: (1) a likelihood of success on the merits; (2) that it will suffer irreparable harm if the injunction is denied; (3) that granting preliminary relief will not result in even greater harm to the nonmoving party; and (4) that the public interest favors such relief.”
“In order to prove irreparable harm, the moving party must demonstrate potential harm which cannot be redressed by a legal or an equitable remedy following a trial.” Bioquell, Inc. v. Feinstein, No. 10-2205, 2011 U.S. Dist. LEXIS 16081, at *15 (E.D. Pa. Feb. 14, 2011). “Mere injuries, however substantial, in terms of money, time and energy necessarily expended in the absence of a stay are not enough.” Sampson v. Murrary, 415 U.S. 61, 90 (1964) (quoting Va. Petrol. Jobbers Assn. v. FPC, 259 F.3d 921, 925 (D.C. Cir. 1958).
The Court also cited Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 801 (3d Cir. 1989). There, the plaintiff argued that without a preliminary injunction its business will “be completely destroyed, its employees and jobs will be lost and its goodwill and business reputation will be ruined.” However, this did not show irreparable harm where facts did not support the harm claimed). Additionally, “the risk of irreparable harm must not be speculative.” Adams v. Freedom Forge Corp., 204 F.3d 475, 488 (3d Cir. 2000).
The Robson Forensics, Inc. Court evaluated the evidence:
Here, Robson Forensics, Inc. … has failed to point to any “resultant incalculable damage” connected to [Defendant’s] employment with [a competitor].”
Conclusion – No Guarantees in Court
The Robson Forensics, Inc. Court ultimately decided:
RFI fails to show a likelihood of success on the merits or that it would clearly suffer immediate and irreparable harm in the absence of the requested TRO. Accordingly, RFI’s motion for a TRO is denied.
Robson Forensics, Inc. is a good company that this author has successfully utilized to assist with litigation. However, as many realize the hard way: there are no guarantees in litigation in either state or federal court.
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