On May 11, 2016, President Obama signed new trade secret legislation into law. The Defend Trade Secret Act of 2016 (“DTSA”) provides companies with new powerful tools to protect their most valuable information. To take full advantage of these new tools, companies must develop and implement a response plan before any theft occurs. This article identifies how companies may position themselves to take advantage of this important new legislation.
The DTSA provides a nationwide civil right of action for misappropriated trade secrets.
Unlike patents, copyrights, and trademarks, trade secrets were only protectable under state law. As a practical matter, the outcome of a trade secret case often turned on which state’s laws applied to the dispute, leading to conflicting results and confusion, particularly for companies operating in multiple states.
The DTSA attempts to solve this problem by providing a uniform body of law across the nation. But, the statute may fall short in several key respects. First, the DTSA does not preempt the existing body of state trade secret laws. As a practical matter, the existing state law and the DTSA operate in parallel. Second, the DTSA does not alter existing state laws related to employee mobility between competitor companies; state laws differ greatly on the freedom of employees to move between companies. The DTSA’s inability to resolve these two major sources of variation present potentially significant impediments to uniformity. As a result, the DTSA’s noble efforts at creating a uniform, national body of trade secret law may actually create more confusion and complexity for businesses.
The DTSA permits a company to sue in federal district court.
With the enactment of the DTSA, a trade secret plaintiff now has the option to file suit in federal court. To take advantage of this forum, the theft must have taken place on or after May 11, 2016 and the stolen trade secret must be related to a product or service used in, or intended for use in, interstate or foreign commerce—a relatively low threshold in today’s increasingly global and digital economy.
In other words, the DTSA provides an aggrieved company with an initial strategic decision of whther to proceed in state court or federal court depending on what forum it believes will provide it the greatest protection. That early strategic decision can be complicated and important, depending on the location of the parties, the nature of the alleged harm, and the applicable state law.
Seizure of Trade Secret Information
The most noteworthy provision of the DTSA is the ex parte seizure remedy. Unlike its state law counterparts, the DTSA empowers a federal district court to grant a petition to seize trade secret information to prevent its dissemination. To obtain a seizure order, the aggrieved party must demonstrate:
- other types of court orders would be an inadequate remedy;
- immediate and irreparable harm would occur;
- the potential harm to the petitioner outweighs the harm to the accused and substantially outweighs the harm to any third party;
- the petitioner is likely to succeed in showing that the information to be seized is a trade secret obtained by improper means by the accused; and
- the accused has actual possession of the trade secret and any property to be seized.
All the requirements for granting a DTSA seizure petition should be discussed with an attorney. To take full advantage of this procedure, companies should revisit their trade secret protection programs to ensure there is a mechanism for early detection of irregular access and use of its trade secrets.
Exceptions and Immunities
The DTSA sets forth certain exceptions and immunities that permit the disclosure of trade secret information by third parties in certain circumstances. For example, there is no DTSA claim stemming from otherwise lawful activity conducted by local, state or U.S. governmental entities. In addition, the DTSA grants whistleblower to individual employees who disclose a trade secret to a federal, state or local governmental official, or attorney for the purpose of reporting a suspected violation or in a court filing under seal.
Employee Notice Requirement
The DTSA requires employers to provide notice of the employees’ whistleblower protection in any agreement that governs the use of trade secret or confidential information. This notice can be provided explicitly in such an agreement or implicitly by reference to a policy document describing the whistleblower immunity. An employer’s failure to comply with this notice requirement will result in a waiver of exemplary damages and attorneys’ fees in any later action against an employee who did not receive the notice. The notice requirement applies to all—and only those—agreements entered into after May 11, 2016. Companies should contact an attorney to review their relevant employee agreements and handbooks to ensure compliance with the DTSA.