United States: Court Allows Plaintiff To Amend Complaint To Add Defend Trade Secrets Act Claim After Discovery Reveals Alleged Continued Misappropriation

A Northern District of California court recently held a plaintiff could amend its complaint to add a Defend Trade Secrets Act ("DTSA") claim when discovery showed continued misappropriation after the enactment of the DTSA on May 11, 2016.

In VIA Technologies, Inc. v. ASUS Computer International, No. 14-CV-03586-BLF, 2017 WL 491172 (N.D. Cal. Feb. 7, 2017), VIA filed suit against ASUS, alleging infringement of VIA's patent and trade secret misappropriation of VIA's intellectual property related to its USB technology. VIA's second amended complaint was filed in July 2015 prior to the enactment of the DTSA on May 11, 2016.

During discovery, ASUS produced data related to sales of products that allegedly incorporated VIA's trade secrets. This data was produced in supplemental productions on November 16, 2016, and on December 22, 2016. VIA claims this data supports the alleged continuation of trade secret misappropriation after the enactment of the DTSA, and therefore, requests to add the claim. VIA claims it also inadvertently overlooked the sales data believing the November 16, 2016, production was merely a "re-production." VIA filed the instant motion on January 4, 2017, after ASUS refused to stipulate to an amendment to add a claim under DTSA.

After weighing the factors, the Northern District Court granted VIA's motion for leave to file a third amended complaint. The Court rejected ASUS's contention that the request to add the DTSA claim should have been six weeks after the November production, and that VIA acted in bad faith when it met and conferred during the holiday period and then filed the instant motion during the expert rebuttal period. The Court held that there was neither undue delay nor bad faith present, and while VIA could have raised the issue in November, the additional four weeks did not cause undue delay. Moreover, the Court explained that VIA understood the November production to be a "re-production," and met and conferred with ASUS promptly after finding relevant data in the December production.

The Court continued that, ASUS failed to bear its burden of showing prejudice. The Court explained ASUS's argument that the differences between the CUTSA and the DTSA would require additional discovery was undercut by ASUS's failure to identify the specific additional discovery and the additional amount of time that would be needed for the additional DTSA claim, and ASUS's admission that "VIA would be seeking the same relief that it's currently seeking under the CUTSA, under the same set of facts."

Finally, the Court reasoned that the proposed DTSA claim was not futile. As VIA explained, the DTSA was enacted on May 11, 2016, and the facts supporting continued trade secret misappropriation were not made available to VIA until November 2016 during discovery.

Continued misappropriation has become of the rising legal developments with DTSA claims, particularly where defendants argue that the DTSA does not apply because the alleged trade secret theft occurred before the enactment of the DTSA.

Yet similar to the holding in VIA Technologies, federal district courts in multiple jurisdictions have allowed plaintiffs to proceed with DTSA claims, at least partially, when the plaintiffs can sufficiently alleged that any wrongful misappropriation occurred after the date of the enactment of the DTSA. See, e.g., Adams Arms, LLC v. Unified Weapons Sys., No. 16-cv-01503, 2016 WL 5391394,  (M.D. Fla. Sep. 27, 2016); Syntel Sterling Best Shores Mauritius Ltd v. Trizetto Group, Inc., Case No. 15-CV-211 (S.D.N.Y. Sept. 23, 2016) ("as Defendants allege that Syntel continues to use its Intellectual Property to directly compete with Trizetto, the wrongful act continues to occur after the date of the enactment of DTSA"). But see Avago Techs. United States Inc. v. NanoPrecision Products, No. 16-cv-03737, 2017 U.S. Dist. LEXIS 13484 (N.D. Cal. Jan. 31, 2017) (dismissing DTSA claim because alleged trade secrets were disclosed before the DTSA came into effect).

Thus, DTSA claimants should ensure they sufficiently allege acts of misappropriation occurring after the DTSA's May 11, 2017, enactment date to increase the likelihood of surviving early pleading challenges.

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