Last August, we published a blog post on the handful of cases that addressed whether the whistleblower immunity provision of the Defend Trade Secrets Act (“DTSA”), codified at 18 U.S.C. §1833(b)(1), can insulate a whistleblower from liability at the pleading stage. See https://www.altolit.com/blog/whistleblower-immunity. As of that publication, courts had not ruled out the possibility that the provision could serve as an ex ante bar to claims of trade secret misappropriation where the company’s trade secrets had been disclosed only (1) to a Federal, State or local official or attorney, (2) to report or have investigated a suspected violation of law, and (3) in confidence. Several decisions since our last update suggest that §1833(b)(1) is not a potent bar to trade secret claims at the pleading stage, though it still remains to be seen how the provision may be applied at summary judgment or trial.
First, in Argos USA LLC v. Young, No. 1:18-CV-02797-ELR, 2019 WL 4125968, at *5–6 (N.D. Ga. June 28, 2019), the court considered whether DTSA and state law trade secret claims should be dismissed as immunized conduct under the DTSA. The defendant argued that he was immune from liability because he had turned over any trade secret documents he obtained from plaintiff to his attorney “to report and investigate violations of law.” Id. at *5. Defendant then filed both a qui tam action and a product liability action purportedly based on the stolen documents. The court allowed plaintiff’s trade secret claims to proceed because the complaint alleged that “[m]uch of the information [Defendant] stole had nothing to do with any allegations in his qui tam action” and “had nothing to do with any allegations that could support the product liability action.” Id. at *6. Thus, plaintiff’s simple allegation that the defendant had misappropriated its trade secrets for a non-whistleblower purpose was sufficient to allow the case to proceed. See also Sorensen v. Polukoff, No. 2:18-CV-67 TS-PMW, 2020 WL 1692815, at *6 (D. Utah Apr. 7, 2020) (denying motion to dismiss where defendant had disclosed a stolen hard drive to the Department of Justice and to attorneys for possible investigation of False Claims Act violations but the Complaint alleged that defendant had disclosed its trade secrets for reasons other than “the purpose of reporting or investigating a suspected violation of law”).
Second, in Garcia v. Vertical Screen, Inc., No. CV 19-3184, 2020 WL 2615624, at *5 (E.D. Pa. May 22, 2020), the court considered whether trade secret counterclaims should be dismissed against a plaintiff who claimed DTSA immunity because he gave the stolen documents to his attorneys to prosecute suspected FLSA violations. The court denied plaintiff’s motion to dismiss because immunity, as an affirmative defense, may only be decided at the motion to dismiss stage where “the predicate establishing the defense is apparent from the face of the complaint.” Id. at 5. Not surprisingly, defendant’s immunity defense was not established from the face of the adversary’s counterclaims.
Finally, the holding in Softketeers, Inc. v. Regal W. Corp., No. SACV 19-519 JVS (JDEx), 2020 WL 1164680 (C.D. Cal. Jan. 7, 2020) dealt perhaps the most lethal blow to DTSA § 1833(b) serving as an ex ante bar at the pleading stage. Under the DTSA, a plaintiff can allege misappropriation of trade secrets in one of two ways: (1) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2) disclosure or use of a trade secret of another without express or implied consent. 18 U.S.C. §1839(6)(5). In Softketeers, the court considered whether to dismiss defendant’s DTSA counterclaim, which alleged acquisition by improper means. Id. at *3. Plaintiffs argued that – setting aside defendants’ allegations of acquisition by improper means – the court should at least dismiss the counterclaim insofar as it was predicated on disclosures made by plaintiffs to their counsel to investigate defendants’ unlawful conduct and prosecute claims based on that conduct. Id. at *3.
The court denied dismissal of the counterclaim on that (or any) basis. Id. at *4. The court reasoned that it need only determine whether the allegations state a DTSA claim under any possible theory. Since the counterclaim stated a claim based on acquisition by improper means, the court did not dismiss the claim at the pleading stage. The court’s ruling opens up the possibility that whistleblower immunity may be defeated merely if plaintiffs include an allegation of misappropriation by “improper means.”
For more information regarding litigation strategy, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, Ellen London.
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