The DTSA and Civil Seizure Under Federal Rule of Civil Procedure 65

The Defend Trade Secrets Act (DTSA) civil seizure mechanism provides victims of trade secret theft with a tool to immediately freeze dissemination of stolen proprietary information. Using civil seizure, a court may direct federal marshals to seize property necessary to prevent the promulgation of stolen trade secrets. Civil seizure can only be employed in “extraordinary circumstances,” however, and a request for civil seizure has never been granted, though only a handful of requests have been made under this DTSA mechanism, which is still less than a year old (the most recent request was denied in the Northern District of California in OOO Brunswick Rail Mgt., et al. v. Sultanov, et al., No. 5:17-cv-00017 (N.D. Cal. Jan. 6, 2017)).

The story of civil seizure and the DTSA does not end there. Victims of trade secret theft have another route to seizure in relation to allegations under the DTSA: Fed. R. Civ. P. 65. Under Rule 65, a judge may grant a seizure request as part of a temporary restraining order (TRO) or preliminary injunction related to allegations of trade secret theft under the DTSA, and thus potentially avoid the “extraordinary circumstances” requirement of the DTSA civil seizure provision. This strategy was recently employed in the Northern District of Indiana, in Magnesita Refractories Co. v. Surendra Mishra, 2:16-CV-524 (N.D. Ind. Jan. 25, 2017).

On December 23, 2016, the Court in Magnesita Refractories Co. granted a TRO ordering seizure of defendant’s, a former employee of plaintiff, personal laptop that the Court found was necessary because there was “a strong likelihood that [the employee] was conspiring to steal [the employer’s] trade secrets contained on the laptop, and the seizure needed to be taken forthwith to prevent the impending harm.”

The employee challenged the seizure under Fed. R. Civ. P. 64, arguing that the seizure order was improper because the last sentence of Fed. R. Civ. P. 64 (bold below) requires any seizure under the DTSA to be pursuant to the DTSA’s own civil seizure mechanism, and not through a TRO pursuant to Rule 65.

Rule 64(a) reads as follows:

At the commencement of and throughout an action, every remedy is available that, under the law of the state where the court is located, provides for seizing a person or property to secure satisfaction of the potential judgment. But a federal statute governs to the extent it applies.

The Court disagreed with the employee, explaining that the defendant ignored the purpose of Rule 64(a), “which is to provide for seizure of a person or property ‘to secure satisfaction of the potential judgment.’” Because the TRO requested by plaintiff requested seizure to preserve evidence contained on the employee’s laptop and not for the purpose of securing assets for the satisfaction of a potential judgement, Rule 64(a) does not apply. The Court also pointed to two other cases in which a federal district court issued a TRO pursuant to the DTSA under Rule 65 (for seizure of flash drives, cell phones, and laptops, amongst other things), and not pursuant to the statute’s civil seizure provision.

The Court also recognized that the DTSA’s civil seizure provision provides that a court may not grant a DTSA civil seizure unless it determines that “an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure . . . would be inadequate to achieve the purpose of this paragraph because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order.”

This order highlights the extraordinary circumstances that must exist for civil seizure under the DTSA to be appropriate. Where such circumstances are not in play, trade secret owners combating misappropriation should be aware of the also potent seizure remedies available under Rule 65.

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