Is Employer to Whom Trade Secrets are Allegedly Disclosed a Necessary Party in DTSA Claim Against Former Employee?

Given increased employee mobility, claims under the Federal Defend Trade Secrets Act (DTSA) are on the rise. The DTSA provides a federal cause of action for misappropriation of a trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce. See 18 U.S.C. § 1836(b). When considering a complaint against a former employee for violations under the DTSA, is the new employer to whom information is allegedly disclosed a necessary and indispensable party? A Massachusetts district court recently said no.

In Phio Pharms. Corp. v. Khvorova, the plaintiff Phio Pharmaceuticals Corporation (PPC) sued the defendant—the company’s former Chief Scientific Officer—for misappropriation under the DTSA. PPC alleged that the defendant assigned to U Mass Medical School (defendant’s new employer and competitor of PPC) a patent application describing a class of molecules that PPC and the defendant allegedly investigated while the defendant was working for PPC. PPC sought the return of all trade secret information allegedly in the defendant’s possession and an injunction against further use or disclosure of its confidential information.

The defendant moved to dismiss claiming that U Mass was an indispensable party under Federal Rule of Civil Procedure 19. The court denied the motion and held that U Mass was not a necessary or indispensable party. The court reasoned that PPC’s misappropriation claims could be resolved without analysis of patent rights and that given U Mass’s sovereign immunity, it was likely that PPC would not have an adequate remedy against the defendant if U Mass was considered an indispensable party. See id. at *9, 12 & 14.

Given the likelihood that the Massachusetts court’s interlocutory order may not be appealed until after final judgment, see Alto v. Black, 738 F.3d 1111, 1130 (9th Cir. 2013) citing United States v. San Juan Bay Marina, 239 F.3d 400, 405 (1st Cir. 2001), Khvorova may have to await conclusion of the case to secure appellate review of the court’s decision. Nevertheless, the decision comports with another recent opinion finding that the new employer of a departing employee accused of violating the DTSA is not an indispensable party under FRCP 19. See Ravago Ams., LLC v. Ward, 2019 U.S. Dist. LEXIS 21803, at *9 (N.D. Ohio Feb. 11, 2019).

Wendy R. Stein and Tryn T. Stimart are Directors in the Gibbons Intellectual Property Department. They have secured restraints pursuant to the DTSA and will be presenting a Continuing Legal Education (CLE) on the DTSA on www.lawline.com in October 2019.
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