Pre-Enactment Conduct and the DTSA


  • Name
    DJ Healey
    Person title
    Senior Principal
    Headshot of DJ Healey

The Defend Trade Secrets Act (DTSA) applies only to acts of misappropriation occurring on or after May 11, 2016. The DTSA defines misappropriation to include improper acquisition or improper use or disclosure. But misappropriation is often not a single, one-time event. Although the DTSA addresses "continuing misappropriation," it does so only in the subsection of the Act that addresses the statute of limitations, noting that "continuing misappropriation constitutes a single claim of misappropriation." What then happens to acts of continuing misappropriation where the misappropriation commenced before the DTSA's enactment?

At least one district court has found that "existing state law on trade secrets informs the Court's application of the DTSA." Source Prod. & Equip. Co. v. Schehr, No. 16-17528, 2017 U.S. Dist. LEXIS 138407, at *6 (E.D. La. Aug. 29, 2017) (finding support from congressional reports and the definitional similarities between the DTSA and UTSA). If this is the applicable standard, then it appears that in many states, pre-enactment conduct may not be covered by the DTSA even if the conduct continued after enactment. Texas is one such example. Like many other states, Texas modeled its trade secret statutes after the UTSA. Unlike the DTSA, the TUTSA expressly states that continuing misappropriation that commenced before enactment is not covered by TUTSA. See 2013 Tex. Sess. Law. Serv. Ch. 10 (S.B. 953 § 3). Accordingly, if a claim arose between September 1, 2014, and the effective date of DTSA, May 11, 2016, a plaintiff can only bring its misappropriation claim under TUTSA, not the DTSA.

On the other hand, in Brand Energy v. Irex Contr. Grp., the Eastern District of Pennsylvania found that "Congress clearly expressed its intent to apply the DTSA to continuing misappropriations that began prior to —€” but continued after — the DTSA's enactment." Brand Energy & Infrastructure Servs, Inc. v. Irex Contracting Grp., 2017 U.S. Dist. LEXIS 43497, 2017 WL 1105648, at *8 (E.D. Pa. Mar. 24, 2017). The Court further found that "an alleged misappropriation occurs on any date that a person uses another's trade secret." Id. at 11 n.9 (emphasis added). Notably, the Court found in the plaintiff's favor despite an express provision in the Pennsylvania Unified Trade Secret Act that the PUTSA "shall not apply to misappropriation occurring prior to the effective date of this act, including a continuing misappropriation that began prior to the effective date of this act and which continues to occur after the effective date of this act." Id. at *17-18 (citing PUTSA, Pub. L. No. 143, § 4 (2004).

Since Brand Energy, other district courts have also allowed DTSA claims for acts of misappropriation that occurred before the DTSA's enactment if the misappropriation continues to occur after the enactment date and the continuing misappropriation is adequately pleaded. See, e.g., Roeslein & Associates, Inc. v. Elgin, 2018 WL 1138465 (E.D. Mo. 2018) (although the alleged misappropriation occurred as early as October 3, 2014, the plaintiffs were found to have properly asserted a continued and ongoing misappropriation).

Pre-enactment conduct is just one of the many areas in which interpretation of the DTSA has resulted in inconsistent decisions across states. How — and if —€“ these varying perspectives will be resolved is yet to be seen.

Authors: DJ Healey, Khanh V. Nguyen