By Andrew P. Holland and Jared M. Ahern
On May 11, 2016 President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”). Among other things, the DTSA provides that an “owner of a trade secret that is misappropriated may bring a civil action . . . if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”1 The new law expressly states that it is not meant to “preempt any other provision of law,”2 and therefore state substantive trade secret law—such as California’s rejection of the inevitable disclosure doctrine3—will apply to actions brought in federal court under the DTSA.
Previously there was no independent federal jurisdiction over trade secret claims, leaving parties to pursue their claims in state court unless there was some other means of jurisdiction, such as diversity of citizenship. This is in contrast to disputes involving the other principal forms of intellectual property—copyrights, trademarks, and patents—for which the federal courts were already open for business.4
While the DTSA does not displace the state substantive law regarding trade secrets, by opening the federal courts to trade secret cases the new law requires attorneys and parties involved in such cases—or who expect to be in the future—to be familiar with federal court procedure. The following are some of the most significant ways that practice in the federal courts and the California state courts are distinct from one another.
Juror size and required consensus: To prevail at trial in federal court a plaintiff must secure a unanimous jury verdict, and juries in federal court can be as small as six individuals (a maximum of 12).5 In California state court only 9 of 12 jurors are needed to obtain a verdict.6
Differing summary judgment procedures: In California state court a party may move for summary judgment only with respect to causes of action, affirmative defenses, a claim for exemplary damages, or an issue of duty.7 In federal court summary judgment can be granted such that any “material fact” is deemed established, including as it relates to “an item of damages or other relief.”8 Parties in federal court can therefore more precisely narrow the issues before trial by use of the summary judgment procedure. For example, a plaintiff could move for summary judgment on only one element of a cause of action.
Differing pleading standards: In federal court a pleading must set forth a “plausible” claim for relief.9 This standard is arguably more stringent than the California state court pleading standard that the pled facts must “constitute a cause of action.”10
Jury pools: A jury in state court will consist of individuals from the county in which the case is venued. In federal courts juries are drawn from the entire district. For example, in a case proceeding in federal court in Los Angeles jurors could be brought in all the way from San Luis Obispo (because it is in the Central District of California). This makes for a more geographically diverse jury than would be found in the California state courts. The practical effect of this is up for debate. For example, San Francisco juries are anecdotally friendly to plaintiffs, so it may benefit a defendant sued in a trade secret case in state court in San Francisco to remove the case to federal court.
Mandatory disclosure in federal court: In federal court the parties are required by Federal Rule of Civil Procedure 26 to voluntarily disclose the names of potential witnesses, the documents supporting their claims or defenses, and a computation of damages claimed.11 In California state court this information must be affirmatively requested before it is required to be disclosed.
Miscellaneous other considerations: There are other factors that are more ethereal because they are not based on rules, but are rather grounded in practical realities. For example, federal courts generally have more financial resources than California state courts, and this effects everything from staffing to the quality of the physical facilities. Each federal trial judge has two attorney law clerks to assist them, while the California state courts generally have more limited staff. Conveniences such as electronic filing are also available in federal court, but not in all California state courts.
Individual attorneys and parties will also have their own preferences which will influence whether they want their trade secret case litigated in state or federal court. Familiarity with courts through past experience, convenience factors relating to travel distances for attorneys, witnesses, and parties, or a perceived advantage over an opponent with less experience in a particular forum could all inform the decision of a party who has a choice of whether to proceed in state or federal court.
The DTSA opens the doors to the federal courthouse in trade secret cases. Attorneys and litigants pondering whether to choose to proceed in a federal forum, or who find themselves there involuntarily, need to be aware of federal court procedures lest a procedural misstep negatively impact their substantive rights.
1DTSA § 2(b)(1).
2DTSA § 2(f).
3Whyte v. Schlage Lock Co., 101 Cal.App.4th 1443, 1460 (2002). Under the inevitable disclosure doctrine a “plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.” Id. at 1458. California’s rejection of the doctrine is at odds with that of many other jurisdictions. See Nucor Corp. v. Bell, No. 2:06-CV-02972-DCN, 2008 WL 9894350, at *15–16 (D.S.C. Mar. 14, 2008) (observing that the majority of courts to consider the issue have adopted the inevitable disclosure doctrine and attributing California’s rejection of it to the state’s “unusually strong public policy against restraints on trade.”)
4Federal courts have exclusive jurisdiction over claims that arise under patent and copyright law. 28 U.S.C. § 1338(a). For claims arising under federal trademark law (the Lanham Act), federal and state courts have concurrent jurisdiction. Entex Indus., Inc. v. Warner Commc’ns, 487 F.Supp. 46, 48 (C.D. Cal. 1980).
5Fed. R. Civ. P. 48.
6Cal. Civ. Proc. Code § 618.
7Cal. Civ. Proc. Code § 437c(f)(1).
8Fed. R. Civ. P. 56(g).
9Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
10Cal. Civ. Proc. Code § 430.10(e).
11Fed. R. Civ. P. 26(a)(1)(A).