Tuesday, January 31, 2017

Monthly Column (2017, No. 1): Why All the Hullabaloo Over the Ex Parte Seizure Order?

We are closing in on one year of the Defend Trade Secrets Act, with not a whole lot of controversy. So far, no real controversies. No concerns of federalism. No huge legal question that has confounded courts. No apparent abuse of the statute.

I was relatively late to the party in terms of supporting the DTSA, which I originally felt was unnecessary. I warmed to the idea for a number of reasons, which I wrote about months before the law was enacted.

Approximately seven months since enactment, the issue that likely delayed the DTSA's passage for two years and the one that still generates the most commentary is a statutory provision that will yield the smallest practical impact: the ex parte seizure order.

The remedy is designed to give victims of trade secrets theft a quick, uncontested way to seize the instruments of the theft. (Click here for a good summary of what the order, and applying for it, entails, by Wilmer Hale.) The problem is that the remedy really adds nothing to a judge's arsenal of relief and is unnecessary to administer the DTSA effectively.

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I noted this about the ex parte seizure order provision back in 2015 when I endorsed the DTSA: 

This is not the law's most outstanding feature, to be sure. But it's not an independent reason to defeat the law. For starters, I have a hard time believing that federal courts will warm to the idea of this remedy. It will be deployed sparingly...Judges are competent enough to snuff out abuses and impose damages for a wrongful seizure of property. This remedy potentially is a paper tiger, and it will work itself out in practice.

With the benefit of time, I stand by my conclusion. The text of the remedy, found in Section 1836(b)(2), is so long and detailed that one must think think it adds a very heavy substantive and procedural layer of protection that the law otherwise does not afford. That's plainly not the case. In fact, federal courts have wide discretion to implement procedural orders that (a) require the immediate turnover of devices or laptops (the real target of the seizure provision), (b) protect the confidentiality of the information found on devices, and (c) preserve evidence. This authority can be found in the Federal Rules of Civil Procedure and in the court's inherent authority to control and monitor its own docket for the efficient disposition of cases.

For instance, a victim of trade-secret theft always can apply for a temporary restraining order that accomplishes precisely the same thing as a seizure order under the DTSA. Some restraining orders actually mandate conduct. So the DTSA's seizure provision overlaps significantly with what a judge could order under Federal Rule of Civil Procedure 65. Many of the subsets of the DTSA already are part of basic TRO practice, including the provisions on mandating particular findings, a return date for a hearing, a description of the property to be seized, and a surety bond.

The DTSA confusingly says that the seizure provision is unavailable if Rule 65 is inadequate to achieve the provision's purpose. No one really knows what that means, except that it certainly gives a judge reason to hit the pause button. Given the discretion a judge has to order temporary injunctive relief (even on an ex parte basis), it seems overly cumbersome for an attorney to make this showing. About the only real difference between an ex parte restraining order and an ex parte seizure order is that the latter requires a hearing on 7 days. Rule 65 gives you 14 days, so I am unclear why a victim would want to embark on a process, and then defend an order, with a shorter duration.

The DTSA does contain a provision that allows one (probably a third-party) to file a motion for encryption. This would allow one to encrypt information on a seized laptop, for instance, that's unrelated to the theft. Imagine a new employer's product designs which are on an employee's laptop, but which have nothing to do with the case. It seems reasonable and not intrusive to allow the employer to move for prophylactic relief to protect its product designs, but the Federal Rules of Civil Procedure are flexible enough to embrace that right anyway. A non-party who seeks a protective order only needs to first intervene in the case. That can't be much more cumbersome than seeking an encryption order.

District courts seem pretty sanguine about the ex parte seizure order, which bears out what I have been saying about its limited scope and impact. Three separate district courts have issued Rule 65 temporary restraining orders in DTSA cases that seize property. See Magnesita Refractories Co. v. Mishra, No. 2:16-cv-524 (N.D. Ind.); Earthbound Corp. v. MiTek USA, No. C16-1150 (W.D. Wash.); and Panera LLC v. Nettles, No. 4:16-cv-1181 (E.D. Mo.). All Rule 65 orders accomplished precisely what the ex parte seizure order was designed to do.

Another case, OOO Brunswick Rail Mgmt. v. Sultanov, No. 5:17-cv-17 (N.D. Cal.), denied a motion for an ex parte seizure order because it was issuing both (a) a separate evidence preservation order on non-parties that maintained personal e-mail accounts for the defendants, and (b) ordering the defendant to deliver devices to the court at the time of an injunction hearing. These orders fall within the court's inherent authority to issue orders preserving evidence and under Rule 65 itself.

Before the DTSA became law, Professor Eric Goldman of Santa Clara University School of Law wrote that "[i]n light of the remedies already available to trade secret owners in ex parte temporary restraining orders...the seizure provision [of the DTSA] purports to apply to only a narrow set of additional circumstances."

I'm still waiting for someone to tell me what those narrow set of additional circumstances are.

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