Executive Summary: Having just celebrated its one-year anniversary, the Defend Trade Secrets Act (DTSA) triggered an uptick in federal litigation concerning the fight to protect corporate trade secrets. Though no court has issued the elusive ex parte civil seizure remedy which the Act allows, one recent decision came close. In OOO Brunswick Rail Mgt. v. Sultanov, 2017 WL 67119 (N.D. Cal. Jan. 6, 2017), the U.S. District Court for the Northern District of California used the DTSA to bar an individual defendant from accessing or modifying a laptop and cell phone received from his former employer, and to compel non-parties Google and Rackspace to preserve both individual defendants’ web-based email accounts.
Background
During a debt restructuring, Brunswick noticed “unusually secretive” behavior by employee Richard Sultanov. Investigating his work email, Brunswick discovered Sultanov sent confidential documents and secret commercial information to his personal Gmail account without authorization. An examination of his phone records revealed calls to former employee Paul Ostling and to a Brunswick creditor whom Sultanov was explicitly prohibited from contacting. Compounding this apparent impropriety, Sultanov refused to return his Brunswick-issued laptop and cell phone after separating from the company.
In its federal complaint, Brunswick alleged Sultanov and Ostling conspired to disclose its trade secrets to disadvantage the firm during the restructuring negotiations. Brunswick also filed an ex parte application to recover Sultanov’s electronic devices and to compel email hosting providers Google and Rackspace to preserve Sultanov’s and Ostling’s personal email accounts.
The Court’s Order
The court resolved the emergent matter in two ways. First, the court ordered Google and Rackspace to preserve Sultanov’s and Ostling’s personal email accounts. Though these entities were not parties to the action, the court found a substantial risk that Sultanov and Ostling would delete relevant material from email accounts hosted by Google and Rackspace and that preservation by the hosting firms was both necessary and within their “reasonable capabilities.” Absent a court order, neither hosting firm had to preserve this information. The court did not compel Google or Rackspace to produce a copy of the personal emails to Brunswick, reasoning that preservation of the material was sufficient at this early stage of the case.
Second, the court ordered Sultanov to deliver his Brunswick-issued laptop and cell phone to the court at the time of the preliminary injunction hearing. Although the court denied Brunswick’s request to have U.S. Marshals seize Sultanov’s computer and cell phone, it prohibited Sultanov from accessing or modifying the devices prior to the injunction hearing.
The Bottom Line for Employers:
Though the DTSA empowers courts to compel law enforcement to seize devices and equipment which unlawfully contain a company’s confidential information and trade secrets, we know of no court that has done so within the Act’s first year. The Brunswick decision is no different. Yet employers continue to use the DTSA to aggressively protect their trade secrets from misuse or disclosure. Through a comprehensive preservation order, companies like Brunswick can safeguard corporate information and secure potentially valuable evidence on internet-based email accounts. Employers should see this decision as another positive step in using the DTSA to protect confidential and proprietary business information, the most prized corporate asset in today’s information age.
Mark Saloman is Co-Chair of FordHarrison’s Non-Compete, Trade Secrets and Business Litigation practice group. If you have any questions regarding this decision, please feel free to contact Mark at msaloman@fordharrison.com. You may also contact any member of the practice group or the FordHarrison attorney with whom you usually work.