Recent Federal Decisions Confirm That DTSA Claims Must Follow Longstanding Pleading Standards
As the law’s first anniversary approaches, federal courts continue to adjudicate claims arising under the Defend Trade Secrets Act (“DTSA”). Enacted on May 11, 2016, DTSA provides the first private federal cause of action for trade secret misappropriation, allowing parties to sue in federal court for trade secret misappropriation. Although the law is in its infancy, employers and legal practitioners filing complaints that assert DTSA claims must nevertheless adhere to longstanding rules of pleading set forth by the Supreme Court and the Federal Rules of Civil Procedure (“FRCP”). Two recent decisions address this fundamental concept and serve as reminders that all complaints must follow basic pleading precepts.
Rules of Pleading Under DTSA
Rule 8(a)(2) of the FRCP requires a pleading to contain a “short and plain statement of the claim showing facts that the pleader is entitled to relief.” A complaint must contain sufficient factual matter, accepted as true, “to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim becomes plausible if its “factual content . . . allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Should the well-pleaded facts support no “more than the mere possibility of misconduct,” then dismissal pursuant to FRCP 12(b)(6) is warranted. Applying these standards to claims brought under the DTSA, a plaintiff must allege facts demonstrating that it is the owner of a trade secret that was misappropriated. 18 U.S.C. § 1836(b)(1). Generally speaking, a “trade secret” is information that the owner “has taken reasonable measures to keep . . . secret” and that “derives independent economic value . . . from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” Id. § 1839(3). Thus, a plaintiff asserting a DTSA claim bears the burden of alleging sufficient facts to demonstrate that it took reasonable steps to maintain the secrecy of the protected information.
Two Recent DTSA Decisions Reach Opposite Results
In Raben Tire Co. v. Dennis McFarland, Case No. 16-CV-00141, 2017 U.S. Dist. LEXIS 26051 (W.D. Ky. Feb. 24, 2017), a Kentucky federal court dismissed with prejudice a claim for misappropriation of trade secrets under DTSA for failure to state a claim. The plaintiff Raben Tire (a seller and installer of tires for commercial vehicles and construction equipment) sued two of its former employees and their new employer because, prior to resigning, the former employees allegedly transferred “confidential and proprietary information” to their new employer, including sales commission reports and the names of the individuals responsible for tire purchases. Other than labeling that information as “confidential” in its complaint, Raben Tire did not allege any facts showing that it took any steps to protect the information from disclosure. This omission was fatal to Raben Tire’s claim for misappropriation of trade secrets under the DTSA.
By contrast, a North Dakota federal court denied a motion to dismiss such a DTSA claim in Aggreko, LLC v. Guillermo Barreto & Elite Power, LLC, Case No. 16-cv-00353, 2017 U.S. Dist. LEXIS 35573 (D.N.D. Mar. 13, 2017), finding that the complaint satisfied the pleading standards. Just like in Raben Tire, the plaintiff Aggreko (a company that rents generators to customers) sued a former employee and his new employer because, prior to resigning, the employee allegedly downloaded Aggreko’s trade secrets and confidential information relating to Aggreko’s operations, customers, business proposals, and pricing strategies onto his personal hard drive for the benefit of his new employer. Aggreko’s complaint included one critical allegation missing from the complaint in Raben Tire: the former employee was bound by confidentiality and employment agreements intended to protect Aggreko’s confidential information and to ensure that the information was not removed from the workplace or used by former employees and competitors. In light of these allegations, the court denied the former employee’s motion seeking dismissal of Aggreko’s trade secret claim because it was “certainly plausible.”
Raben Tire and Aggreko confirm that claims brought under DTSA must be pleaded with the longstanding federal pleading principles in mind. Employers and practitioners must take care to allege facts asserting plausible claims that not only describe the trade secrets at issue but also detail what measures the employer took to protect them. Otherwise, like the plaintiff in Raben Tire, the complaint may be subject to dismissal on a motion to dismiss pursuant to Rule 12(b)(6).