Trade secrets: When does the statute of limitations begin to run?

January 29, 2025 - Statutes of limitations are themselves bright-line rules, requiring a person to bring suit within a specified time after the cause of action accrues.

 

Statutes of limitations have long been an important feature in all systems of enlightened jurisprudence. They are vital to the welfare of society and are favored in the law because they promote repose by giving security and stability to human affairs. By terminating claims the Legislature has deemed stale, statutes of limitations protect defendants and the courts from having to deal with cases in which the search for truth may be seriously impaired by the loss of evidence, whether by death or disappearance of witnesses, fading memories, disappearance of documents or otherwise.

 

The analysis of SOL issues in trade secret cases is a complex subject and it starts with an understanding of two seminal cases that form the bedrock of the SOL affirmative defense in trade secret misappropriation lawsuits: Underwater Storage, Inc. v. U.S. Rubber Co., 371 F.2d 950 (CADC, 1966), cert. den., 386 U.S. 911 (1967) and Monolith Portland Midwest Co. v. Kaiser Aluminum & Chemical Corp., 407 F.2d 288 (CA9, 1969).

 

 

In Underwater Storage, Dr. Quase developed an underwater system for the storage of strategic materials. On March 27, 1964, Dr. Quase sued the defendants for the misappropriation of certain systems, methods and technical know-how. In less than a month after the complaint was filed, Dr. Quase's deposition was taken on April 22, 1954.

 

Dr. Quase admitted under oath he had seen a United States Navy publication issued in December 1960 entitled "Development of a 50,000 Gallon Submersible Fuel Cache" and he obtained a copy of this report in January or February 1961. He also admitted that this report convinced him that the defendant had misappropriated and used his trade secrets.

 

Based on these admissions, the defendant moved for summary judgment alleging that the trade secret misappropriation claims were time-barred by the three-year statute of limitations for tort actions. The plaintiff's "continuing tort" claim was also rejected by the trial court.

 

Dr, Quase appealed to the District of Columbia U.S. Circuit Court of Appeals. The appellee argued that if it were held that the use of the published information constituted a continuing tort, the statute of limitations would never run, and an action could lie for 100 years (or more) for defendant's continuing use long after the information had entered the public domain.

 

The appellate court concluded that it was an "extremely close question" but concluded that the misappropriation and continuing use of a trade secret constitutes a continuing tort and an injured party can recover for use during the statutory period preceding the filing of the suit if there has been wrongful use during the three-year statutory period.

 

 

In Monolith Portland Midwest Co., Monolith sued the defendant for trade secret misappropriation and patent infringement.

 

After protracted discovery and an extended trial, the district court entered judgment for defendant Kaiser on all counts. Monolith appealed to the 9th U.S. Circuit Court of Appeals.

 

The District Court rejected Monolith's trade secret case on the ground that Monolith's claims were time-barred by the statute of limitations.

 

The disclosure occurred on June 9, 1995, when Kaiser revealed to Monolith the use of certain technology and certain sales, but Monolith claimed that it did not discover the adverse use or disclosure of the trade secret until the following year.

 

The 9th Circuit rejected the knowledge or discovery by Monolith. Accrual of the cause of action for trade secret misappropriation is not postponed to the date upon which Monolith discovered the breach. The 9th Circuit also rejected the contention that the statute of limitations does not bar recovery because the action is upon a continuing tort.

 

The cause of action for trade secret misappropriation is based upon the protected relationship, contractual or confidential. It is the relationship between the parties at the time the secret is disclosed that is protected. The fabric of the relationship once rent is not torn anew with each added use or disclosure, although the damage suffered may be aggravated — the cause of action arises but once.

 

 

Under the Uniform Trade Secrets Act (UTSA), an 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. A continuing misappropriation constitutes a single claim.

 

Comparing Monolith to Underwater, the drafters of the UTSA rejected a continuing wrong approach to the statute of limitations, but the UTSA delays the commencement of the limitation period until an aggrieved person discovers or reasonably should have discovered the existence of misappropriation. If objectively reasonable notice of misappropriation exists, three years is sufficient time to vindicate one's legal rights.

 

Under the Defend Trade Secrets Act (DTSA), a civil action may not be commenced later than three years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered.

 

The Defend Trade Secrets Act adopts the discovery rule but leaves out the continuing tort doctrine.

 

The date of accrual for a DTSA cause of action can be extended under the continuing tort doctrine where the plaintiff alleges that a defendant has kept a secret confidential but continued to use it for commercial advantage. In the application of the continuing tort doctrine, each successive use constitutes a new actionable tort for purposes of the statute of limitations.

 

In contrast, no extension exists under the UTSA because the continuing misappropriation has been collapsed by statute into a "single claim."

 

R. Mark Halligan is a regular contributing columnist on trade secrets law for Reuters Legal News and Westlaw Today.