BFV Perspectives, Noncompete & Trade Secrets, | Feb 10, 2020

Defend Trade Secrets Act Update: Court Addresses Immunity Defense

Enacted in 2016,  the federal Defend Trade Secrets Act (DTSA) provides a federal cause of action for trade secret theft. The DTSA was a significant development because it put trade secrets on par with other forms of intellectual property that are protected by federal law. 

Employers & The Defend Trade Secrets Act

When an employer discovers evidence of trade secret misappropriation or evidence of threatened misappropriation, the DTSA gives the employer the ability to file an action in federal court, rather than in a state court.

The Defend Trade Secrets Act expressly provides protection and immunities for whistleblowers. Under the DTSA, an employee is not liable for disclosing a trade secret to a government official or an attorney if the disclosure is made for the sole purpose of reporting or investigating a suspected violation of the law.

There have only been a handful of cases addressing the DTSA’s whistleblower immunity provisions.* However, a recent case from the Northern District of Georgia, Argos USA, LLC v. Christopher Young and Southeast Ready Mix, LLC**, provides a detailed analysis of when this potential defense to a clam of trade secret misappropriation will apply.

Trade Secret Misappropriation?

In this case, the plaintiff, Argos, sells ready-mix concrete for residential and commercial applications.  In 2011, Argos acquired a building materials company which employed the defendant, Christopher Young, who became employed by Argos.

Not long after Young became employed, according to Argos’ complaint, he began misappropriating documents and information in a variety of ways. This included printing documents secretly in his office, photographing documents and e-mails, recording private conversations, and stealthily taking documents from his personnel file.

In 2013, Young filed a qui tam action in the Southern District of Georgia, claiming that Argos engaged in illegal price fixing. While preparing for the whistleblowerlawsuit, Young shared documents and information with his attorney. The federal and state governments investigated the claims in the qui tam lawsuit, but ultimately declined to pursue them. In 2016, Mr. Young’s attorney moved to voluntarily dismiss the action. The lawsuit was eventually unsealed.

Around when Young’s whistleblower lawsuit was concluding, Argos terminated his employment, claiming that it had lost confidence in his management ability.  Shortly thereafter, Young accepted employment with Southeast Ready Mix, LLC, which competes with Argos. Two years later, Argos filed a lawsuit against Young and Southeast, claiming, among other things, that they had engaged in trade secret misappropriation.

Whistleblower Defense under the Defend Trade Secrets Act

Young moved to dismiss the claim against him on the grounds that he was immune from liability for trade secret misappropriation under the DTSA’s whistleblower protections.  He acknowledged copying documents. However, he claimed the copied documents were turned over to his attorney to investigate potential violations of the law and to file the qui tam action.

Young relied on 18 U.S.C. section 1833(b), which shields individuals from any liability under any federal or state trade secret law for disclosure of a trade secret made “in confidence… to an attorney… solely for the purpose of reporting or investigating a suspected violation of law.”  According to Young’s argument, the trade secret claim should be dismissed because he turned over Argos’ documents to his attorney to report and investigate potential violations of the law. This is evidenced, according to Young, by the fact that his attorney initiated a whistleblower action on his behalf, even if it was later dismissed. 

In evaluating Young’s Motion to Dismiss, the Court focused on Argos’s allegations that much of the information he took had nothing to do with the allegations in the qui tam action.  Given those allegations, the Court found it could not dismiss Argos’ trade secret claim against Young on immunity grounds at the pleadings stage.   

Future Whistleblowers Beware

The Court’s ruling in Argos appears sound given that the record did not support concluding at the pleadings stage that trade secrets were taken and disclosed to an attorney solely for the purpose of reporting or investigating a suspected violation of law.  That said, if an employer can overcome the whistleblower immunity protections merely by alleging that some documents taken and shared with an attorney were irrelevant to the employee’s whistleblower claims, such an interpretation would arguably eviscerate the protection from having to defend retaliatory trade secret lawsuits that Congress intended to offer whistleblowers. 

Indeed, the fact that Argos delayed filing its trade secret lawsuit until several years after the qui tam action was unsealed suggests Argos may not have been highly concerned about Young’s information theft, and that the subsequent lawsuit may have been retaliatory based on his whistleblower filing.  It will be interesting to see if other courts follow Argos and similarly narrowly construe the DTSA’s whistleblower protections.

* Unum Grp. v. Loftus, 220 F. Supp. 3d 143 (D. Mass. 2016)

* * Argos USA, LLC v. Christopher Young and Southeast Ready Mix, LLC, 2019 WL 4125968 (N.D. Ga. June 28, 2019)

BFV Perspectives, Noncompete & Trade Secrets, | Feb 10, 2020
Neal F. Weinrich
Neal F. Weinrich

Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.