SOUR GRAPES: Fig Spread Verdict Under DTSA Doesn’t Stick, Argue Jam Company Defendants

3 minute read | April.21.2017

In a dispute over ripped off recipes, counsel for victorious plaintiff Dalmatia Import Group hailed the jury verdict as the first of its kind under the Defend Trade Secrets Act, as we previously reported.  Not so fast, sulked the defendants, Dalmatia’s erstwhile manufacturer Lancaster Fine Foods and distributor FoodMatch, in a filing this month.  While acknowledging their defeat under the Pennsylvania Uniform Trade Secrets Act, the defendants nevertheless urged the court not to enter judgment under the DTSA.

Why? Lancaster and FoodMatch contend the trade secrets award could not be issued under the DTSA because Dalmatia had not proved that any damages occurred since the DTSA’s effective date, May 11, 2016.  Rather, the defendants claim the jury award was based on their sales of the pirated preserves, which started in January 2016.  (There is no mention of when Lancaster and FoodMatch stopped selling the jacked jam.)  Since the jury was only instructed on the PUTSA and not separately on the DTSA, Dalmatia would not be prejudiced because it would fully obtain its awarded relief on its trade secrets claim under the Pennsylvania act.

Federal district courts have begun interpreting how the DTSA’s effective date affects federal trade secrets claims alleging pre-enactment conduct, and have reached similar but somewhat varying conclusions. Generally, courts have allowed DTSA claims that allege improper disclosure or use occurring after the effective date even if the improper acquisition occurred before the effective date.

For example, in a continuing use case, Syntel Sterling  v. Trizetto Group, the Southern District of New York allowed defendants to add a DTSA counterclaim, even though the improper acquisition of confidential documents relating to defendants’ proprietary software by departing employees occurred before the DTSA’s enactment, because the defendants alleged that plaintiffs’ improper use of the trade secrets in those documents continued after the DTSA’s enactment.  The Eastern District of Pennsylvania also allowed a continuing use claim under the DTSA to proceed in Brand Energy v. Irex Contracting Group, where plaintiff alleged that defendant continued using modified versions of plaintiff’s proprietary business documents.  The DTSA does not incorporate the Uniform Trade Secrets Act’s provision against continuing misappropriations.

Courts may, however, require more than conclusory allegations of continuing use. The District of Delaware in Hydrogen Master Rights  v. Weston allowed the trade secret misappropriation claims under Ohio, Michigan, and Delaware law to proceed but dismissed the DTSA claim for failing to sufficiently allege any improper acts occurring on or after May 11, 2016.

In another case, Adams Arms v. Unified Weapon Systems, the Middle District of Florida allowed a DTSA claim to proceed under a disclosure theory (but not under an acquisition theory) because it alleged that defendant improperly disclosed confidential information relating to plaintiff’s military rifles to a third party in a contract signed “in late May or early June 2016.”

On the other hand, re-disclosure after the DTSA’s effective date of a previously disclosed trade secret might not be cognizable as a federal misappropriation claim.  The Northern District of California in Avago Technologies v. Nanoprecision Products dismissed the defendant’s DTSA counterclaim relating to plaintiffs’ continued prosecution of patents beyond the DTSA’s effective date, where the patent applications allegedly contained defendant’s trade secrets but were filed before the DTSA’s effective date.  Public disclosure extinguishes a trade secret, the court explained, and disclosure of the same information is not misappropriation.

Where does this leave Dalmatia’s verdict? Dalmatia has offered no insight into what if any post-enactment misappropriation occurred.  Did the defendants continue to sell the stolen spread past May 11, 2016?  Maybe it doesn’t matter.  Since the DTSA claim wasn’t dismissed and wasn’t separately instructed to the jury from the Pennsylvania claim, Dalmatia may well keep its footnote in trade secrets history.