Government Agencies Immune from Suit Under Defend Trade Secrets Act

While the Defend Trade Secrets Act (“DTSA”) is an invaluable legal tool for businesses seeking to protect their trade secrets, it does not help when the disclosing party is a government agency. In a recent decision, a Massachusetts federal court held a business could not rely on the DTSA to prevent the Massachusetts Department of Transportation (“MassDOT”) from disclosing its trade secrets.

Defend Trade Secrets Act

The DTSA created a federal cause of action for trade secret misappropriation, giving companies a powerful new tool to enforce their intellectual property rights. A key provision of the DTSA provides that:

“an owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” 

Among the available remedies, the DTSA provides for injunctive reliefto prevent any actual or threatened misappropriation of trade secrets. More importantly, unlike state laws, the federal statute allows trade secret owners to seek a civil seizure in order to “prevent the propagation or dissemination of the trade secret.” Further, if“exceptional circumstances” exist that render injunctive relief “inequitable,” courts are authorized to order the defendant to pay a reasonable royalty for the continued use of the trade secret. 

DTSA Does Not Apply to Government

In Fast Enterprises, LLC v. PollackFast Enterprises, LLC (FAST) filed suit under the DTSA seeking to prevent Stephanie Pollack, in her capacity as Secretary and CEO of the MassDOT, from disclosing FAST’s trade secrets. FAST submitted bid proposal documents that contained trade secrets in response to a Request for Proposals issued by the MassDOT Registry of Motor Vehicles. Specifically, The bid proposal was for the replacement of the RMV’s core computer system. Fast Enterprises alleged that its bid proposal contained confidential and proprietary information regarding the functionality and operation of the system that it proposed to install. As a result, some of FAST’s competitors and a reporter for a local television station requested the FAST documents under the Massachusetts public records law. (SeeMass. Gen. Laws ch. 4, § 7). Under the Massachusetts public records law, documents must be disclosed unless they are “specifically or by necessary implication exempted from disclosure by statute.” (SeeMass. Gen. Laws ch. 4, § 7(26)(a)).

In seeking to dismiss the suit, MassDOT argued that the district court lacked jurisdiction. MassDOT reasoned that while the DTSA authorizes the “owner of a trade secret that is misappropriated” to bring a civil action and grants the United States district courts original jurisdiction over such cases, the statute also provides that it “does not prohibit or create a private right of action” in regard to “any otherwise lawful activity conducted by a governmental entity of . . . a State.” 

The district court agreed with this reasoning. While the court was sympathetic to the FAST’s concerns about the disclosure of its confidential data, it concluded that the DTSA was not intended to apply to government entities. 

“Although the Court fully sympathizes with Fast Enterprises, and cannot help but wonder why the state would require the disclosure of proprietary bid information given the impact that it could have on future bid solicitations, it is constrained by the applicable statutes,” the court held. “Ultimately, as the federal statute does not provide for a cause of action in these circumstances, this issue must be resolved by the state courts or the state legislature.” 

In reaching its decision, the court rejected FAST’s argument that because Congress’ goal in enacting the DTSA was to provide a uniform national standard for trade secret misappropriation, it did not intend to exempt government entities. “The exemption at issue here applies only to the actions of federal, state and local government entities and it is entirely reasonable to read the statute as demonstrating that Congress did not intend for the DTSA to abrogate state sovereign immunity or to otherwise interfere with lawful policy decisions made by state legislatures concerning the activities of the state,” the court explained.

Key Takeaway for NY and NJ Businesses

This decision points out how crucial it is for companies to understand applicable state public record laws when submitting any type of confidential information for government bids. In light of the above, companies would be wise to consider alternative methods for government bid proposal submissions. This could be as simple as redacting proprietary information. Thus, while the DTSA may not shield trade secrets from disclosure, there are often other precautionary measures businesses can take when including proprietary information in bid documents. To discuss your options, we encourage you to contact a member of the Scarinci Hollenbeck Public Law Group

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