SDNY Clarifies the Scope of ‘Misappropriation’ Under the Defend Trade Secrets Act

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Picture this: Your former employee steals valuable trade secrets, and then uses those trade secrets as collateral in an attempt to extort your company. If you thought those facts would give rise to a claim for trade secret misappropriation under the Defend Trade Secrets Act (DTSA), think again. Recently, U.S. District Judge Jed Rakoff was presented with such a case, and he found that alleged use of a company’s trade secrets to try to extort the company did not constitute “misappropriation.” Rakoff’s analysis provides a helpful guide for determining what behavior may be actionable under the DTSA.

Employer Alleges That Former Employee Misappropriated Trade Secrets. In Zurich American Life Insurance Co. v. Nagel, — F.Supp.3d —-, 2021 WL 1877364 (May 11, 2021), Zurich sued a former employee who had worked for Zurich for nine years as a senior paralegal. The former employee had signed a contract agreeing that he would not “disclose, use for [him]self or others, make unauthorized copies of, alter or modify in anyway [sic], or take with [him]” Zurich’s proprietary information. Id. at *3. He also agreed that he would “immediately return all Proprietary Information to the company upon the company’s request or upon termination of [his] employment.” Id.