October 17, 2018

You Can’t Sue the Government Under the Federal Trade Secrets Act

Holland & Knight Trade Secrets Blog
Steven D. Gordon

It's an old aphorism that "you can't fight City Hall." Now it's time to add a related aphorism: "you can't sue the government under the federal Defend Trade Secrets Act (DTSA) for disclosing your trade secrets" – at least so long as the disclosure is lawful under existing law apart from the DTSA.

On Sept. 21, 2018, a federal court in Massachusetts dismissed a DTSA action brought by a government contractor seeking to prevent the Massachusetts Department of Transportation (MassDOT) from disclosing trade secrets contained in the contractor's bid proposal to the agency. The bid documents were being sought through a public records request made by the contractor's competitors and a reporter for a local television station. The contractor argued that disclosure of the records at issue would violate the DTSA, while MassDOT asserted that the records were subject to disclosure under the Massachusetts Public Records Law.

Although the court expressed sympathy for the contractor's plight, it concluded that it lacked jurisdiction because the DTSA "does not…create a private right of action" in regard to "any otherwise lawful activity conducted by a governmental entity of the United States, a State, or a political subdivision of a State." 18 U.S.C. § 1833(a)(1). The court reasoned that "it appears that Congress specifically intended to circumscribe the DTSA so it would not interfere with the policy choices made by state governments in regard to their own operations."

The contractor argued that the purpose of the DTSA was to provide a uniform national standard for trade secret misappropriation with clear rules and predictability, and that it would be absurd if the DTSA does not create a cause of action in this case. The court rejected this argument. It observed that "the exemption at issue here applies only to the actions of federal, state and local government entities and it is entirely reasonable to read the statute as demonstrating that Congress did not intend for the DTSA to abrogate state sovereign immunity or to otherwise interfere with lawful policy decisions made by state legislatures concerning the activities of the state."

The court also rejected the contractor's argument that the exemption for government entities is inapplicable here because the named defendant was the Secretary and CEO of MassDOT, rather than the state of Massachusetts. The court noted that the suit was brought against this individual in her official capacity and reasoned that Massachusetts was the real party-in-interest, with the result that the exemption applies.

The lesson for government contractors is clear: don't count on the DTSA to protect your trade secrets from disclosure if you submit them to the government in the course of contracting activities. Make sure you know about the disclosure obligations of your governmental contracting partner under applicable federal, state or local law before you share trade secrets with it.

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