Open Question: Use Of Stolen Trade Secrets May Or May Not Qualify As A Predicate Act Under RICO

• Published date: 15 March 2022
• Subject Matter: Intellectual Property, Trade Secrets
• Law Firm: Mintz
• Author: Mr Adam Samansky, Michael J. McNamara, Nicholas W. Armington and Oliver Ennis

Since the passage of the Defend Trade Secrets Act (DTSA), trade secret owners have been able to use allegations of trade secret misappropriation under the DTSA to support civil claims under the Racketeer Influence and Corrupt Organizations Act (RICO). Specifically, DTSA violations that qualify as predicate acts can be used to show a pattern of racketeering activity, which may allow a trade secret owner to state civil claims under RICO, and thus take advantage of the substantial remedies that the RICO statute provides, including the potential for treble damages and attorney's fees.

To state a civil RICO claim, a plaintiff must allege:

(1) the existence of an enterprise affecting interstate commerce; (2) that the defendant was employed by or associated with the enterprise; (3) that the defendant participated, either directly or indirectly, in the conduct or the affairs of the enterprise; and (4) that the defendant participated through a pattern of racketeering activity that included at least two racketeering acts

Magnesita Refractories Co. v. Tianjin New Century Refractories Co., CIVIL ACTION NO. 1:17-CV-1587, 2019 U.S. Dist. LEXIS 32559, at *28 (E.D. Pa. Feb 28, 2019).

Given the DTSA's relatively recent enactment in 2016, however, jurisprudence concerning what type(s) of violations may qualify as a "predicate act" under RICO is still developing. Interestingly, while several courts have found that the theft or receipt of trade secrets qualify as predicate acts, the circumstances under which the use of misappropriated trade secrets may qualify as a predicate act remains a somewhat unsettled question.

For example, the U.S. District Court for the Central District of California recently held that the use of misappropriated trade secrets qualifies as a predicate act under RICO. In Skye Orthobiologics, LLC v. CTM Biomedical, the plaintiffs alleged that the defendants stole and used various trade secrets related to its tissue products, including customer lists and pricing models. 2021 WL 6102520, at *9-10 (C.D. Cal Feb. 9, 2021). On a motion to dismiss, the court considered whether the "use" of stolen trade secrets qualified as a predicate act sufficient to show a pattern of racketeering activity under RICO, explaining that:

Plaintiffs allege that the RICO Defendants used information gained through trade secret misappropriation on numerous occasions, and continue to use such information, to market an almost-identical product and to divert business from Skye...