Is it Too Late to File a Misappropriation of Trade Secrets Suit?

A statute of limitations sets forth the latest date by which a party must file a lawsuit after some triggering event. As with most other cases, trade secret claims are subject to statutes of limitations. The result can be costly: if you assert a trade secret claim after the statute of limitations has passed, it is subject to dismissal. Thus, it is important for trade secret owners to be proactive when investigating potential trade secret misappropriation and bring claims in a timely manner. Conversely, if accused of misappropriation of trade secrets, the statute of limitations can be a powerful defense leading to an early dismissal.

What is the statute of limitations for a misappropriation of trade secrets claim?

It is important to check the applicable state law, but generally you have three years from when you first discover trade secret misappropriation to file suit. The Defend Trade Secrets Act ("DTSA") provides a cause of action for trade secret misappropriation in federal courts. Under the DTSA, you must bring an action no later than three years after the alleged misappropriation "is discovered or by the exercise of reasonable diligence should have been discovered." 18 U.S.C. 1836(d). The Uniform Trade Secrets Act ("UTSA"), upon which most state trade secret acts are based on, similarly provides that "[a]n action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered." UTSA 6.3. However, as adopted by individual states, the statute of limitations for trade secret claims varies. For example, the statute of limitations in Alabama is only two years, whereas it is five years in Illinois and six years in New Jersey.

What level of suspicion or knowledge rises to the level of "discovery" of trade secret misappropriation?

The "discovery rule" provides that the statute of limitations does not begin to run until the alleged victim discovers or reasonably should have discovered the injury. This makes sense because wrongdoers may take affirmative measures to hide their actions, hindering the ability to detect misappropriation.

Under the "discovery rule," diligence is required. The statute of limitations starts to run when a company has either "actual notice" or "inquiry notice" of the trade secret misappropriation. For example, one court found that a plaintiff company was on "inquiry notice" of potential trade secret misappropriation when the defendant breached its duty to return plaintiff company's confidential documents, which was required under an NDA between the parties. Thus, the statute of limitations for the trade secret claim was triggered at the time of the breach of the NDA.

On the other hand, a former employee joining a competitor company or the commercial launch of a competing product, without more, is unlikely to constitute "inquiry notice" that triggers the statute of limitations. For example, one court reasoned that the statute of limitation clock did not start running when a former employee joined the defendant company because the plaintiff could not have known about the defendant's unauthorized use of its trade secrets until discovery, particularly because the defendant had concealed its wrongdoing by denying all allegations of misappropriation in an earlier letter. See Best Practices: How to Protect Trade Secrets From Loss Through Departing Employees.

What is fraudulent concealment?

The fraudulent concealment doctrine "tolls" the application of the statute of limitation because the defendant has concealed its misconduct. The concept of fraudulent concealment, however, does not come into play when a plaintiff is already on notice, either actual or constructive, of the alleged misappropriation. One court recently noted that because the plaintiff was already on notice of the alleged misappropriation, the defendant's efforts to conceal its wrongdoing, however egregious, did not toll the statute of limitations.

Takeaways

For trade secret owners, you should promptly investigate any concerns about misappropriation of trade secrets. For individuals or companies accused of misappropriation of trade secrets, you should investigate when the statute of limitations was triggered as it can be an effective way to resolve trade secret litigation.

More questions? Contact the authors or visitFish's Intellectual Property Law Essentials.