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October 15, 2021

Recent Texas Decision Analyzes Defend Trade Secret Act's Interstate Commerce Requirement in the Context of Real Estate Transactions

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Under the federal Defend Trade Secret Act ("DTSA"), trade secret owners can assert trade secret claims in federal court so long as the trade secrets are "related to a product or service used in, or intended for use in, interstate or foreign commerce." See 18 U.S.C. § 1836(b)(1). Since the DTSA was enacted, some courts have strictly interpreted its interstate commerce requirement. See, e.g., DLMC, Inc. v. Flores, Civ. No. 18-00352(DKW)(RT), 2019 U.S. Dist. LEXIS 10785 (D. Haw. Jan. 23, 2019) (trade secret claim brought by Hawaii-based plaintiff dismissed, reasoning that it appeared that plaintiff did "not offer any interstate services.") However, a recent Texas court decision underscores a trend wherein courts are more liberally interpreting the DTSA's interstate commerce requirement. See Providence Title Co. v. Truly Title, Inc., Civ. No. 4:21-cv-147(SDJ), 2021 WL 2701238 (E.D. Tex. July 1, 2021). Providence Title is a precedent any trade secret defendant hoping to get out of federal court should read.

In Providence Title Company, the plaintiff was a title company operating only in Texas. It alleged that its trade secrets, including financial information, employee salaries, customer lists and marketing strategies were misappropriated by five defendants, including one corporate defendant that had been previously been in talks to acquire the plaintiff. The defendants moved to dismiss for lack of subject matter jurisdiction, arguing that because the plaintiff did not allege that the purported trade secrets moved in interstate commerce, the dispute could not remain in federal court. The court denied the motions, noting that the DTSA does not require alleged trade secrets themselves to move in interstate commerce. Instead, the statute requires trade secrets to "relate to a product or service" used or intended for use in interstate or foreign commerce. The court held that the DTSA's interstate commerce requirement was properly pled where the trade secrets were alleged to relate to services—title services—that were used in interstate commerce.

In reaching its decision, the court agreed with other courts, including the Southern District of New York in Zirvi v. Flatley, that the interstate commerce requirement is not a requirement for subject matter jurisdiction, but is a requirement to state a claim under the DTSA. The court further reasoned that a real estate transaction is an interstate transaction when funds for buying the real estate originate outside the state where the property is located and that title services—even when performed entirely within one state—are an integral part of an interstate transaction. Accordingly, as the Providence plaintiff alleged that it provided title services to out-of-state purchasers and worked with out-of-state underwriters on Texas title insurance policies, the interstate commerce requirement was satisfied.

Since the enactment of the DTSA in 2016, named defendants seeking to dismiss or remand trade secret disputes to state court based on pleading deficiencies alone have been facing setbacks. Court decisions like Providence Title Company v. Truly Title Co. continue that national trend.

If you have any questions about the Defend Trade Secret Act and how it may affect your business, please contact your CSG attorney or one of the authors listed.

ALM expressly disclaims any express or implied warranty regarding the OnPractice Content, including any implied warranty that the OnPractice Content is accurate, has been corrected or is otherwise free from errors.

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