Does The Federal Trade Secrets Act Make A Difference For Connecticut Employers?

briefcase-lock_72DPI_RGBThe federal Defend Trade Secrets Act (the President signed it on May 11th) went on the books with a lot of fanfare.  For the first time, employers (and other trade secret owners)  have a federal law claim for trade secret misappropriation, and resort to the federal courts for relief.  Previously, trade secret enforcement through civil lawsuits was exclusively a state law phenomenon.  The question is whether the fanfare is deserved.  Does it really make a difference for Connecticut employers seeking to enforce their trade secret rights against actual or threatened violations by employees or former employees?  The question isn’t merely academic.  The federal Act doesn’t preempt state law.  Connecticut employers can choose to sue under state law in state court or under federal law in federal court.

The answer is that the federal Act does make a difference for Connecticut employers, but in the ordinary case, the difference isn’t material.  In most respects, the federal Act mirrors Connecticut’s law (the Connecticut Uniform Trade Secrets Act, or “CUTSA”).  Both define “trade secret” in essentially the same way.  Both define “misappropriation” pretty much the same way. The two laws have identical statutes of limitation – three years from the date the employer discovers or should have discovered the misappropriation.  Both laws authorize injunctive relief, damages for actual loss, damages for unjust enrichment to the extent those damages are not accounted for in computing actual loss, and double damages for willful and malicious misappropriation.  Each law affords the prevailing party a right to reasonable attorney’s fees from its adversary.

There are some differences.  Under the federal Act, the court can’t issue an injunction that prevents a person from entering into an employment relationship.  State law has no such restriction.  Is this a material difference?  Probably not.  In many cases, the civil action to enforce trade secret rights is accompanied by a count to enforce a contractual non-competition covenant.  If the case is  in federal court, and it could be there if the misappropriation of trade secrets claim is brought under the federal Act, the federal Act will not prevent the court from enforcing the non-compete and precluding the defendant from entering into, or continuing, an employment relationship with a new employer.  Moreover, the federal Act allows the court to issue an injunction that restricts the defendant’s activities in his new employment; e.g., he or she can take or stay in the job, but can’t disclose the plaintiff’s trade secrets to the new employer.  State court judges applying state law in a pure trade secret enforcement case can also issue injunctions like this.  While CUTSA does not explicitly furnish this authority, the power to do so is an inherent judicial power.

In most cases, then, the decision whether to go to federal or state court will turn on the employer’s lawyer’s personal preference – his or her sense of where the case will be heard more quickly, where it will be better managed, and the quality of the judges who might hear and decide the matter.

There is one aspect of the federal Act that has no counterpart in CUTSA.  The federal Act includes an ex parte seizure provision.  If the employer’s complaint is verified or accompanied by an affidavit, the employer can file along with the complaint an application for the seizure of “property necessary to prevent the propagation or dissemination” of the trade secret involved in the action.  Because the application is for the ex parte order the Act authorizes, the court can grant the order quickly without notice to or hearing from the defendant.  If the order is granted, a federal law enforcement official does the seizing, and the court holds the property.  No later than seven days after the court issues the order, the court must hold a hearing where the defendant can exercise its due process rights by making the plaintiff prove the facts needed for the order to remain in effect.

Not surprisingly, it won’t be easy for employers to obtain a seizure order.  The Act makes it available only if the court finds that the defendant wouldn’t comply with an injunction to discontinue using or disclosing the secret and to turn over to the documents containing the secret, but would instead destroy, move, hide, or otherwise make the “property” – those documents – inaccessible.  And there is a bond requirement to provide security for the defendant if it should sue successfully for wrongful or excessive seizure.

Time will tell, but it may well be that through a combination of temporary injunctive relief and a pre-judgment remedy of replevin, state law would allow an employer to seek, and the court to grant, the extraordinary, emergency relief that the federal Act explicitly authorizes, without calling it a seizure order.  Stay tuned.

(There is one other aspect of the new federal statute that will have an impact on employment agreements in Connecticut and elsewhere.  We’ll cover that in a separate blog post, coming soon.)