DTSA Immunity: A Plaintiff’s Dream Or A Burdensome Nightmare?

If you are a regular reader of TSW, you know we have been monitoring developments relating to the Defend Trade Secrets Act of 2016 (DTSA). While the Northern District of California was the first court to enter a written opinion under the DTSA, case law is continuing to develop across the country, including in the First Circuit.

Last month the District of Massachusetts ruled against an employee, Timothy Loftus, who attempted to use the immunity provision of the DTSA to dismiss the trade secret misappropriation complaint against him. In the case, Unum Group v. Loftus, No. 16-cv-40154-TSH (D. Mass. Dec. 6, 2016), Unum Group accused Loftus of misappropriation of trade secrets in violation of the DTSA and state law after video surveillance showed Loftus leaving their offices after hours on multiple occasions carrying boxes of documents out of the building.  In his defense, Loftus did not deny that he removed documents from the building without authorization or that the documents contained trade secrets.  Instead, Loftus argued he is entitled to immunity under the DTSA’s whistleblower provision, teeing up an opportunity for an early glimpse into how courts will interpret this provision.

The immunity provision of the DTSA provides that an individual shall not be held liable for disclosure of a trade secret when disclosure is made to a government official or to an attorney for the purpose of reporting or investigating a suspected violation of law. Loftus argued he was entitled to immunity because he turned over the documents to his attorney in order to pursue legal action against Unum.

The court noted that (1) Loftus had not filed any lawsuit against Unum Group; (2) the suspected unlawful action Loftus was reporting was not readily apparent as Loftus indicated generically that he was contemplating a whistleblower action, in addition to retaliation and wrongful termination claims; and (3) the facts surrounding Loftus’s disclosure of the documents to his attorney were not clear.  Based on these factors, the court denied the motion to dismiss.

The Loftus decision indicates that it may be more difficult for an employee to take refuge in this immunity provision than the plain language of the statute may indicate, particularly at a motion to dismiss stage. Though it remains unclear what factors the Massachusetts court will deem important as the litigation proceeds, at least for now, it seems an employee seeking to benefit from this immunity provision will be best served with a clear violation that has resulted in a lawsuit against the company. Further, it seems the court intends to closely scrutinize claims for immunity—taking into account whether the employee turned over all of the company documents to his attorney (or a government representative) and whether there was any alternate purpose or plan with respect to taking the documents at issue.

For now, it is still a wait-and-see game to determine how the court will ultimately weigh and decide the immunity defense but in the meantime, it seems employers can breathe a sigh of relief that courts seem to be viewing claims of immunity with at least a somewhat skeptical eye.