The DTSA's Jurisdictional Nexus, Three Years In

The DTSA has a limited statutory scope: it protects trade secrets if they “relate[] to a product or service used, or intended for use in, interstate or foreign commerce.” 18 U.S.C. 1836(b)(1). Courts have interpreted this as a statutory limitation on federal protection for trade secrets. Congress presumably could have protected all “trade secrets affecting commerce,” but it did not. Congress protected trade secrets that are “related to a product or service used in, or intended for use in, interstate of foreign commerce.” 18 U.S.C. 1836(b)(1) And since federal jurisdiction is limited and defined by statute, federal jurisdiction only reaches trade secrets with sufficient relationship to a product or service flowing in interstate commerce.

Courts have consistently held that DTSA plaintiffs must therefore plead and prove connections between its trade secret, its product or service, and interstate commerce. Failure to do so risks dismissal. In DLMC, Inc. v. Flores, No. 18-00352 DKW-RT, 2019 WL 309754 (D. Haw. Jan 23, 2019), the plaintiff plead theft of trade secrets related to its healthcare services. Its services are overseen by Medicare and Medicaid, it is regulated by the federal government, and receives most of its income from federal funding. Id. at 1. It also receives insurance payouts from companies located outside of Hawaii. Id. However, it has no clients or patients outside of the state, and thus “it appears that [plaintiff] does not offer any interstate services.” Id. at 2. Accordingly the district court dismissed the DTSA claim for lack of subject matter jurisdiction: “Absent at least an argument articulating how the 'client lists' that [defendant] allegedly stole on behalf of [another entity] relate to the provision of interstate commerce, and facts in support of that argument, the Court cannot conclude that it has jurisdiction over the DTSA claim, or, hence, over this case.” Id. at 2.

Identifying the Jurisdictional Element

DLMC is part of a subtle trend among district courts holding trade secret owners to the DTSA's jurisdictional element. Another, earlier example, is Government Employees Insurance Company v. Nealy, 262 F. Supp. 3d 153, 173 (E.D. Pa. 2017), where the district court sua sponte dismissed the DTSA claim for lack of subject matter jurisdiction: “GEICO's complaint does not allege any nexus between interstate or foreign commerce and the alleged trade secrets …. This deficiency, in itself, warrants dismissal of plaintiff's DTSA claim.”