The Interstate Commerce Requirement of the Defend Trade Secrets Act
The two year anniversary of the enactment of The Defend Trade Secrets Act of 2016 (the “DTSA”) will occur next month, on May 11, 2018. The DTSA created a private, civil, federal cause of action for misappropriation of trade secrets. The statute provides, in relevant part, that “[a]n owner of a trade secret that is misappropriated may bring a civil action under [the DTSA] if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” Almost two years from its enactment, courts are making clear that plaintiffs cannot ignore the interstate commerce requirement and will dismiss a DTSA claim if the complaint fails to address this requirement.
For example, in Search Partners, Inc. v. MyAlerts, Inc. (June 2017), the trade secret dispute arose from an executive recruiting agreement that was entered into by the parties whereby plaintiff Search Partners, Inc. (“SPI”) agreed to recruit and provide names of prospective employees to defendant MyAlerts, Inc. One of the candidates that SPI referred, Mr. Babcock, initially declined MyAlerts’ offer of employment but then, approximately one year later, MyAlerts offered Mr. Babcock a position that he accepted. When SPI later learned of the hiring of Mr. Babcock, it demanded payment under the recruiting agreement. In its complaint, SPI alleged that MyAlerts violated the DTSA by using SPI’s proprietary candidate information for its economic benefit. In granting defendant’s motion to dismiss the DTSA claim, the United States District Court for the District of Minnesota dismissed the claim for multiple reasons, including that “…SPI has not properly alleged that Babcock’s identity qualifies as a ‘trade secret’ as defined by the [DTSA] or that his identity is ‘a product or service used in, or intended for use in, interstate or foreign commerce.’” Similarly, in Hydrogen Master Rights, Ltd. v. Weston (January 2017), the United States District Court for the District of Delaware dismissed the DTSA claim because, in part, the complaint failed to allege any nexus between the trade secrets in question and interstate or foreign commerce.
As a result of these recent decisions, plaintiffs alleging claims under the DTSA should allege in the complaint specific facts that illustrate a nexus between the trade secret that was misappropriated and interstate or foreign commerce.