{"id":73,"date":"2016-10-11T11:10:11","date_gmt":"2016-10-11T15:10:11","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/tradesecretslaw\/?p=73"},"modified":"2016-10-11T14:43:26","modified_gmt":"2016-10-11T18:43:26","slug":"a-call-to-arms-how-timing-matters-under-the-new-defend-trade-secrets-act","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/tradesecretslaw\/2016\/10\/11\/a-call-to-arms-how-timing-matters-under-the-new-defend-trade-secrets-act\/","title":{"rendered":"A Call to Arms: How Timing Matters Under the New Defend Trade Secrets Act"},"content":{"rendered":"

By Shannon Hampton Sutherland and\u00a0Julian A. Jackson-Fannin<\/em><\/strong><\/p>\n

On September 27, 2016, in Adams Arms, LLC v. Unified Weapon Systems, Inc., et al.<\/em>,[1]<\/a> the U.S. District Court for the Middle District of Florida issued one of the first substantive opinions concerning claims brought under the new Defend Trade Secrets Act (\u201cDTSA<\/em><\/strong>\u201d).[2]<\/a><\/p>\n

The DTSA, which became effective on May, 11, 2016, expanded the jurisdiction of federal courts by, among other things, creating a new federal civil cause of action for trade secret misappropriation when \u201cthe trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.\u201d[3]<\/a>\u00a0 Although the DTSA has been hailed as the new \u201cnational standard for trade secret misappropriation,\u201d[4]<\/a> with certain exceptions, its provisions are largely consistent with the well-known Uniform Trade Secrets Act (\u201cUTSA<\/em><\/strong>\u201d) currently adopted by 48 states, the District of Columbia and the U.S. Virgin Islands.[5]<\/a>\u00a0 The DTSA prohibits both the improper \u201cacquisition\u201d of a trade secret as well as its \u201cdisclosure.\u201d\u00a0 As the DTSA continues to make its first impressions on federal courts around the country, threshold questions have arisen concerning the timing of misappropriations and what theories of recovery apply under the freshly minted law.<\/p>\n

At issue in Adams Arms<\/em> was whether a plaintiff can recover under the DTSA for trade secret misappropriations that occurred both before and after the DTSA\u2019s effective date but within its three-year statute of limitations period.\u00a0 In resolving this issue, the Court relied on the plain language of the DTSA in limiting the applicability of the \u201ccontinuing misappropriations\u201d, \u201cacquisition\u201d, and \u201cdisclosure\u201d theories of recovery.<\/p>\n

Adams Arms<\/em> involved a private arms deal to sell high-powered rifles to the Peruvian Army that was turned upside down by corporate intrigue and espionage.\u00a0 Adams Arms, LLC (\u201cAdams<\/em><\/strong>\u201d) specializes in manufacturing high-powered military riles and other small arms and markets its products to various military and law enforcement agencies around the world.\u00a0 Adams\u2019 rifles allegedly achieved their high degree of reliability through a number of trade secrets involved in the manufacturing process and various components of the rifles.\u00a0 Defendants, Aguieus, LLC (\u201cAguieus<\/em><\/strong>\u201d) and its subsidiary, Unified Weapon Systems, Inc. (\u201cUWS<\/em><\/strong>\u201d), approached Adams with an offer to jointly bid to sell rifles to the Peruvian Army.\u00a0 As part of the deal, Adams alleged, it had to disclose certain trade secrets to UWS and Aguieus, and the usual confidentiality and non-disclosure agreements ensued.\u00a0 Adams alleged, however, that, during this process, Defendant, Major General James W. Parker (\u201cParker<\/em><\/strong>\u201d), approached Adams and offered his consulting services in negotiating the rifle contract with UWS.\u00a0 Adams accepted Parker\u2019s offer but, alleged that it was unaware that Parker was a director and advisor to UWS and intended to share the additional trade secret information he obtained through his position with Adams with the rest of the UWS team.<\/p>\n

What came next sparked a battle.\u00a0 After allegedly utilizing the trade secrets obtained from Adams to submit its bid, UWS received the arms contract award from the Peruvian Army.\u00a0 With the deal in hand, UWS then sought to exclude Adams from the transaction and manufacture the new rifles in the Peruvian Army\u2019s existing facilities.\u00a0 Adams cried foul, alerted the Peruvian Army of UWS\u2019 alleged conduct, and immediately brought suit.<\/p>\n

UWS and the other named Defendants challenged Adams\u2019 DTSA claims, arguing that the claims were barred under a \u201ccontinuing misappropriation\u201d theory.\u00a0 Because the DTSA provides that \u201ca continuing misappropriation constitutes a single claim of misappropriation,\u201d and because the Defendants allegedly acquired the trade secrets before the DTSA\u2019s effective date, the Defendants argued that all of the misappropriation claims were barred as a matter of law.\u00a0 In other words, the Defendants argued for an all-or-nothing interpretation\u2015i.e.<\/em>, because Adams\u2019 claim was a single misappropriation that accrued before the DTSA\u2019s effective date and the DTSA cannot be retroactively applied, Adams failed to state a claim.\u00a0 Defendants relied on the DTSA\u2019s statute of limitations provision that states, in pertinent part:<\/p>\n

A civil action under [18 U.S.C. \u00a7 1836(b)] may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been disclosed. For purposes of this subsection, a continuing misappropriation constitutes a single claim of misappropriation.[6]<\/a><\/p>\n

The Court rejected the Defendants\u2019 argument and held that, based upon the \u201cfor purposes of this subsection\u201d language in the last sentence of Subsection 1836(d), the DTSA limits the applicability of the \u201ccontinuing misappropriations\u201d theory to determinations of whether a claim falls within the DTSA\u2019s three year statute of limitations period.\u00a0 In addition, the Court rejected the Defendants\u2019 all-or-nothing interpretation and construed Section 2(e) of the DTSA to allow for partial recovery when an \u201cact\u201d of misappropriation occurring on or after the DTSA\u2019s effective date is alleged.[7]<\/a>\u00a0 As support for its interpretation, the Court noted that the DTSA did not include the limiting language found in Section 11 of the UTSA, which prohibits application of the UTSA to continuing misappropriations occurring after its effective date.[8]<\/a><\/p>\n

With this interpretation in mind, the Court turned to Adams\u2019 allegations and theories of recovery and made two conclusions: (1) Adams failed to state a claim under its \u201cacquisition\u201d theory of recovery because the Defendants acquired<\/em> the trade secrets prior<\/em> to the DTSA\u2019s effective date; but (2) Adams did<\/em> state a claim under its \u201cdisclosure\u201d theory of recovery because the allegations supported an inference that the Defendants disclosed <\/em>Adams\u2019 trade secrets after <\/em>the DTSA\u2019s effective date.<\/p>\n

The Court\u2019s analysis and, most importantly, its interpretation of Section 2(e) of the DTSA leads to two significant observations:<\/p>\n