United States: DTSA Could Provide Trade Secret Owners With Important New Remedies

President Obama today signed into law the Defend Trade Secrets Act of 2016 (DTSA), affording trade secret owners access to federal courts and novel ex parte procedures to protect their trade secret assets. This will likely impact the approach to protecting intellectual property for all business sectors.

Trade secrets consist of information that is not generally known or ascertainable by legal means, has economic value, and has been subject to reasonable precautions to maintain its secrecy. Trade secrets can take a variety of forms, including products that cannot be reverse engineered, manufacturing processes that can be kept secret, research and development plans and data, customer and vendor lists, and business plans and corporate strategies. Unlike patented inventions which must be disclosed and can only be protected for a limited time, trade secrets last as long as the owner can keep them secret and they have value.

DTSA Goals and UTSA Comparisons

The DTSA attempts to curb the rise of digital and traditional trade secret theft and to help synchronize US trade secret protection laws, while establishing trade secret protection as a national priority. Prior to the enactment of the DTSA, suits to recover for trade secret misappropriation could only be brought under state law. Most states have adopted the Uniform Trade Secrets Act (UTSA), but there is some variation between states, and New York and Massachusetts have not enacted the UTSA.¹

Many elements of the DTSA track with the corresponding provisions of the UTSA. Notably, both provide a three-year statute of limitations commencing on the date the alleged misappropriation is discovered, or by the exercise of reasonable diligence should have been discovered, and both make clear that, for the purposes of the statute of limitations, "a continuing misappropriation constitutes a single claim."² Similarly, both the DTSA and UTSA provide for exemplary damages of not more than two times the amount of the actual damages in the event of willful and malicious misappropriation, although the DTSA adds the potential for recovery of attorneys' fees.³ Likewise, the DTSA and UTSA define "misappropriation" similarly.⁴

Trade Secret Owner Protections and Processes

However, the DTSA has the potential to provide significant benefits to owners of trade secrets beyond the protections provided by most states' laws. Importantly, the DTSA opens federal courts to trade secret owners, who may previously have been required to sue for misappropriation in state court. While claims of trade secret misappropriation may still be brought in state court under state law, the creation of a federal cause of action has the potential to make protection of trade secrets across jurisdictions easier. Additionally, the DTSA's proponents hope that the creation of a federal cause of action will serve to harmonize the law nationwide. It is not clear, however, how quickly (or if) that will happen.

Additionally, the DTSA creates ex parte procedures under which trade secret owners may ask a court, "in extraordinary circumstances," to "issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action."⁵ These orders may not be used against innocent third parties. If the court issues a seizure order, the seized material must remain in the custody of the court and a hearing must be held at the earliest possible time, not later than seven days after the order has issued. At the hearing, the party that obtained the order must prove the facts supporting the order. Although similar to a procedure available under the Lanham Act for seizing products that have counterfeit trademarks, this seizure proceeding is a significant new development in trade secret law.

The DTSA also protects whistleblowers who disclose trade secrets to the government or in certain sealed court filings. Further, the new law requires employers to inform their employees of this protection in any contract or agreement with an employee that governs the use of trade secrets or other confidential information.⁶

The DTSA does not change the requirement that owners of trade secrets must take "reasonable measures" to keep such information secret.⁷ Companies should continue to use a variety of techniques to restrict physical and digital access to trade secrets and to control the activities of those who have access to them. Similarly, companies should take steps to avoid infringing the trade secret rights of third parties and, in particular, take steps to avoid the misappropriation of trade secrets when hiring new employees.

Conclusion

By creating a federal cause of action for trade secret misappropriation and the possibility of ex parte seizures of information, the DTSA could greatly change the field of trade secret litigation and provide owners of trade secrets with important new remedies. At the same time, the fundamental principles of trade secret law remain largely the same. Businesses in all fields should review this legislation and use it as an opportunity to assess their trade secret policies and plans.

Footnotes

[1] Unif. L. Comm'n, Legislative Fact Sheet – Trade Secrets Act, Uniform Law Commission (2016).

[2] Compare DTSA § 2(a) with Unif. Trade Secrets Act § 6 (amended 1985).

[3] Compare DTSA § 2(a) with Unif. Trade Secrets Act § 3(b) (amended 1985).

[4] Compare DTSA § 2(b) with Unif. Trade Secrets Act § 1(2) (amended 1985).

[5] DTSA § 2(a).

[6] DTSA § 6(a)(3).

[7] See 18 U.S.C. § 1839(3)(A).

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