Client Alert

The Defend Trade Secrets Act and RICO: Expanding Options for Trade Secret Plaintiffs

March 10, 2017

By

Daren F Stanaway

& Jeff A. Pade

On May 11, 2016, Congress enacted the Defend Trade Secrets Act (“DTSA”), which substantially changed the landscape of trade secret law.  Not only did the DTSA create a new federal cause of action for private parties alleging trade secret theft, it also added trade secret theft to a laundry list of predicate acts upon which a party may premise a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”).[1]  Designed to eradicate organized crime in the United States,[2] the RICO umbrella covers a myriad of “racketeering activities”—from mail fraud, wire fraud, and money laundering to kidnapping, human trafficking, and even murder.[3]  With the addition of trade secret theft to RICO’s definition of “racketeering activity,” however, comes the potential for increased liability for parties accused of stealing trade secrets—and expanded menu options under which trade secret plaintiffs may sue.

Although RICO’s four subdivisions each require proof of slightly different elements, all render engagement in a “pattern of racketeering activity” unlawful.[4]  Because a “pattern” may be premised upon as few as two acts of racketeering,[5] allegations of only two instances of trade secret theft (or one instance of trade secret theft in combination with a second instance of another racketeering activity) potentially could give rise to a RICO claim.  That means that entities engaged in what previously constituted routine intellectual property disputes may increasingly find themselves accused of violating RICO—and thus subject to RICO’s treble damages and attorney’s fee provisions.[6]  In contrast, federal trade secret law (as amended by the DTSA) provides that a trade secret plaintiff may recover only two times the damages suffered, and even then only upon a showing of willful and malicious misappropriation.[7]  Absent willfulness and maliciousness, federal trade secret plaintiffs generally may recover damages only for actual losses and unjust enrichment (or, alternatively, royalties).[8]  Accordingly, the addition of trade secret theft to RICO may expose parties accused of stealing trade secrets to even greater liability.
That said, the DTSA amendment to RICO took effect on May 11, 2016 and does not apply retroactively.  Accordingly, allegations of trade secret theft occurring before that date generally should not give rise to a RICO claim.  However, it is possible that at least one instance of post-May 11, 2016 trade secret theft (or other RICO predicate act) could operate to bring trade secret thefts occurring before that date within RICO’s scope, on the theory that the latter act(s) constituted part of a “pattern” of racketeering activity that began before DTSA’s enactment and continued thereafter.  Indeed, just as RICO requires that at least one act of racketeering activity occur after RICO’s own effective date,[9] on the theory that post-enactment conduct may “combine with prior racketeering acts to produce the racketeering pattern,”[10] courts may consider post-May 11, 2016 trade secret theft (or other racketeering activity) part of a pattern of racketeering activity that began before the DTSA’s enactment and continued thereafter.  Case law addressing trade secret theft under RICO remains in its infancy, but entities should stay attuned to developments in this area and remain cognizant of the potential for trade secret plaintiffs to bring federal trade secret and RICO claims in tandem with traditional trade secret claims under state law.

[1] Defend Trade Secrets Act of 2016, Pub. L. No. 114-153, 130 Stat. 376, 382 (May 11, 2016); see 18 U.S.C. § 1961(1).

[2] See, e.g., United States v. Turkette, 452 U.S. 576, 589 (1981).

[3] 18 U.S.C. § 1961(1).

[4] See 18 U.S.C. §§ 1962(a)–(d).

[5] 18 U.S.C. § 1961(5).

[6] 18 U.S.C. § 1964(c).

[7] 18 U.S.C. § 1836(b)(3)(C).

[8] Id. § 1836(b)(3)(B).

[9] 18 U.S.C. § 1961(5).

[10] United States v. Campanale, 518 F.2d 352, 357 (9th Cir. 1975) (finding no ex post facto invalidity because RICO requires that “at least one act of ‘racketeering activity’ occur after the effective date of the statute”).