RICO Killer: DTSA Non-Retroactivity Wipes Out Racketeering Claim Based on Trade Secret Theft

On May 11, 2016, the U.S. Defend Trade Secrets Act (DTSA) created a federal remedy for trade secret misappropriation and added trade secret theft as an act that can form a predicate for Racketeering Influenced and Corrupt Organizations Act (RICO) violations.  Since the DTSA’s enactment, a number of courts have held that the DTSA does not apply retroactively to misappropriation occurring prior to enactment unless there is continuing use (i.e., an act constituting misappropriation after the DTSA’s enactment despite the acquisition occurring pre-enactment).  Recently, a court in the Northern District of California found the same to be true for RICO claims predicated upon misappropriation occurring prior to the DTSA’s enactment.  In Eli Attia v. Google, the court dismissed with prejudice plaintiff’s fifth amended complaint alleging RICO violations based on criminal trade secret theft and misappropriation that occurred in 2011 and 2012.

The plaintiff, Eli Attia, could not claim misappropriation of its trade secrets post-DTSA because, prior to the DTSA’s enactment, Google published the trade secrets at issue in a patent application—a fact that precluded Eli Attia’s continuing use theory.  Publication in a patent effectively extinguishes a party’s claim that the information remains a trade secret.  Thus, any claim of misappropriation based on continuing use following publication fails.  Eli Attia also attempted to argue that defendants should be estopped from relying on their unauthorized publication of its trade secrets in order to avoid retroactive liability. This argument also failed because it would effectively allow a limited exception to retroactivity which, the district court found, is contrary to law.  Nor was this result inequitable, the court found, because defendants could still be liable under state laws despite the lack of retroactivity under the DTSA and RICO.

The court also shot down Eli Attia’s “pattern of racketeering” allegations.  In its fourth amended complaint, Eli Attia based its allegations on six lawsuits in which defendants purportedly used the same scheme with other businesses in order to induce them to share proprietary information and then wrongfully used or disclosed it.  In its fifth amended complaint, Eli Attia narrowed its allegations to just two isolated lawsuits.  The court rejected these allegations and agreed with defendants that “to allow two seemingly disparate lawsuits against one of the world’s largest companies” to support a RICO claim is a “dangerous precedent” because large defendants such as Google are sued so frequently that it is “hard to imagine a scenario in which a plaintiff could not cobble together two seemingly similar lawsuits.”

In sum, RICO claims that are based on trade secret theft, like DTSA claims, cannot be asserted based on acts that occurred prior to DTSA’s passage.  Plaintiffs should ensure that there is some act that can support an allegation of misappropriation after May 11, 2016—especially if the trade secrets may have been disclosed publicly in the interim—and some link between the defendant’s actions in misappropriating trade secrets that creates a pattern of racketeering that could constitute a RICO violation.