Early Returns (Part 1 of 3): 3D Printing Company Sues under New Defend Trade Secrets Act

(Editorial Note: This is our first of a two-part series exploring recent litigation under the newly-enacted Defend Trade Secrets Act.)

In late May 2016, Magic Leap, Inc. became a pioneer in trade secrets litigation when it became one of the first to venture into the uncharted waters of the Defend Trade Secrets Act. Magic Leap—a developer of technologies used for 3D renderings in augmented reality—sued two of its former employees for trade secret misappropriation under the DTSA in federal court in the Northern District of California. As we recently reported, President Obama signed into law what some consider the “most significant” intellectual properly legislation since the Lanham Act.

The DTSA creates a federal cause of action for trade secret misappropriation. It is intended to harmonize and federalize what some describe as the “divergent” state trade secret misappropriation laws. The DTSA, however, does not preempt state law, allowing plaintiffs such as Magic Leap to pursue trade secret misappropriation claims under both the DTSA and state laws based on the Uniform Trade Secrets Act. This begs the question whether the DTSA can achieve its intended purpose: creating a single framework for addressing alleged trade secret misappropriation.

As background, Magic Leap is a Florida-based startup that develops a variety of 3D technologies relating to, among other things, its head-mounted virtual retinal display that “superimposes 3D computer-generated imagery over real world objects.” According to Magic Leap, its proprietary technologies allow users to wear its augmented-reality viewers for extend periods of time without discomfort because they circumvent visual and neurological problems.

On May 26, 2016, Magic Leap sued two of its VPs, Gary Bradski and Adrian Kaehler, for misappropriating 3D technologies under the DTSA and California’s trade secret law. In addition to trade secret misappropriation, Magic Leap asserts claims against Bradski and Kaehler for breach of their respective employment and confidentiality agreements; breach of the implied covenant of good faith and fair dealing; violations of California Business and Professions Code, Section 17200; and various California tort claims.

As one of the first to file under the DTSA, the Magic Leap litigation has an opportunity to confront the proverbial “elephant in the room”—i.e., whether the DTSA will achieve its intended purpose of creating a federalized framework for addressing trade secret misappropriation.

By filing in federal courts, plaintiffs may avoid the differences between state-court procedural laws and rules of court. In this regard, the DTSA may lead to a more unified procedural framework under the Civil Procedures. However, to the extent plaintiffs assert state-based trade secret misappropriation claims, federal courts will likely still need to address the substantive differences that come with a UTSA claim. At least in this context, the lack federal preemption in the DTSA may undercut a federalized trade secrets regime.

If a plaintiff asserts DTSA and UTSA-based state claims, federal courts will need to consider the same set of facts under both the DTSA and UTSA-based state trade secret laws. There are notable differences between the DTSA and UTSA, including: the definition of a trade secret; the remedies available to plaintiffs; the immunities available to whistleblower employees; and protections for trade secrets in court proceedings.  Where a plaintiff, such as Magic Leap, asserts claims under both the DTSA and UTSA in the same litigation, federal courts will need to address the facts both sets of claims. Depending on the facts at issues, a trier of fact could reach different results under the DTSA as opposed to the state UTSA-based claims.

For example, unlike the UTSA, the DTSA contains whistleblower immunity provisions that provide certain civil and criminal immunity for employees and contractors who disclose trade secrets under certain circumstances. Those same provisions require employers to provide notice of this immunity in any confidentiality or trade secret agreement with its employees and contractors. An employer who fails to provide the proper notice may be unable to take full advantage of its remedies under the DTSA, including exemplary damages and attorneys’ fees for willful or malicious violations. The UTSA does not have these restrictions. Accordingly, an employer may be precluded from seeking certain damages under the DTSA that are otherwise available under the UTSA.

The Magic Leap litigation is still in its inception; it is too early to tell whether the DTSA will result in a federalized trade secret law. At least for now, there may be some benefit to plaintiffs asserting claims under both the DTSA and the UTSA, allowing plaintiffs receive any perceived advantage one regime may offer over the other. How this will shake out for Magic Leap is yet to be seen. However, as one of the pioneering cases, the Magic Leap litigation will be closely watched.