Engineering a DTSA Claim: District Court Allows Broad Allegations to Survive Motion to Dismiss

The strange contraption in this photo is at the heart of a recent decision regarding the pleading standard for DTSA claims.  On June 15, Eastern District of Pennsylvania Judge Juan Sanchez denied a motion to dismiss counts of trade secret misappropriation against Joshua Andrew Adams, a former project engineer for PDC Machines, Inc. who left the company and later joined Nel Hydrogen A/S.  PDC and Nel collaborated in 2008 to develop high-pressure hydrogen gas diaphragm compressors and signed a nondisclosure agreement (NDA) barring Nel from replicating or reverse engineering the technology.  Adams was also subject to an NDA that prohibited him from using any of PDC’s confidential information and trade secrets without written permission.  In the complaint, PDC asserts that Adams now works for Nel, and that Nel has filed at least one patent application listing Adams as the inventor for a high-pressure diaphragm hydrogen compressor that is nearly identical to PDC’s version.

Adams and Nel moved to dismiss claims brought by PDC under the Defend Trade Secrets Act (DTSA) and state trade secret laws, among other claims.  Judge Sanchez rejected the defendants’ contention that PDC failed to adequately allege misappropriation because the trade secrets alleged to have been misappropriated were not adequately described.  The Court held that PDC’s complaint laid out in general terms the proprietary processes and designs that constituted PDC’s trade secrets and alleged that both Nel and Adams had access to these trade secrets in the context of their business and employment relationships.  Even though the complaint did not specifically identify which of those trade secrets Defendants had misappropriated, it explained how PDC believed that Defendants used its trade secrets and provided a factual basis for that belief.  The Court found that this was sufficient, at the pleading stage, to allege a plausible misappropriation claim.

Judge Sanchez also rejected the defendants’ argument that claims brought under the DTSA should be dismissed since PDC didn’t allege that any violations occurred after the statute was signed into law on May 11, 2016.  The Court held that the statute applies to alleged trade secrets misappropriated prior to the enactment date when the defendant continues to use the trade secrets after the enactment date. The Court also noted that Nel didn’t file its international patent application for technology similar to PDC’s compressor until one day after the DTSA was signed into law.  This decision demonstrates that at least one court has allowed what it called “minimally sufficient” allegations at the pleadings stage for DTSA claims.