Trade secrets gained prominence as a federally protected form of
intellectual property this week with the enactment of the Defend
Trade Secrets Act of 2016 ("DTSA"). The DTSA provides
federal civil protection against misappropriation of trade secrets.
Victims of trade secret theft now have the right to assert federal
claims of trade secret misappropriation in the federal district
courts.
President Obama signed the DTSA into law on May 11, 2016. The
Senate and the House of Representatives had overwhelmingly approved
the new law, voting 87–0 and 410–2, respectively. The
DTSA garnered bipartisan support based on the widely held belief
that the law will aid American businesses in protecting their trade
secrets in the global marketplace. The risk of trade secret
misappropriation has never been greater due to the explosion of
digitally stored information and the ease with which employees can
use compact flash drives to take company trade secrets for improper
purposes.
American industry lined up to support the DTSA by emphasizing its
importance for protecting global competitiveness. More than 40
companies and industry organizations wrote Congress supporting the
DTSA, and representatives from industry testified to the importance
of the new law.
Highlights of the DTSA
The DTSA governs disputes over trade secrets that relate to a
product or service used in, or intended for use in, interstate or
foreign commerce.
The DTSA provides for all of the remedies typically available under
state trade secret law, including injunctions, actual damages,
unjust enrichment, royalties, exemplary damages, and attorneys'
fees.
The DTSA also provides a new remedy of an ex parte civil seizure of
property where the applicant seeks a seizure order without the
other side being privy to the request. This civil seizure remedy
has received substantial attention. Prompt seizure of property can
aid in combating misappropriation and mitigating loss to companies.
The DTSA allows a plaintiff to request that a district judge grant
an order directing that federal law enforcement officials seize
property when necessary to prevent the propagation or dissemination
of trade secrets. The plaintiff must establish specific facts
proving eight requirements: (1) inadequacy of an injunction or
other equitable relief; (2) irreparable harm; (3) balance of harms
favors the applicant; (4) likelihood of success; (5) the target
possesses the trade secret and the property to be seized; (6) the
request describes the property with reasonable particularity; (7)
the target would destroy the property if the applicant proceeded
with notice; and (8) the applicant has not publicized the requested
seizure.
The statute further identifies requirements for the seizure order
itself, including that it contain a statement of findings of fact
and conclusions of law. Seizure orders must provide for the
narrowest seizure of property necessary for the situation. Anyone
harmed by a seizure order may file a motion seeking dissolution or
modification of the order at any time. The DTSA contains many
additional procedural rules governing civil seizures of
property.
The DTSA expressly rejects the inevitable disclosure doctrine,
which posits that a former employee will inevitably use a former
employer's trade secrets at a new job. In contrast, the DTSA
does provide for imposition of an injunction to stop threatened
misappropriation. The DTSA allows the district judge to enjoin an
individual "on such terms as the court deems reasonable."
The DTSA provides, however, that an injunction cannot broadly
prevent a person from entering into an employment
relationship.
Individuals have immunity from liability for the disclosure of a
trade secret if the disclosure is made in confidence to a
government official or to an attorney for the purpose of reporting
or investigating a suspected violation of the law. This immunity
extends to disclosures made in a complaint or other document filed
in a lawsuit if the filing is made under seal and in an
anti-retaliation lawsuit. The DTSA imposes requirements on
companies to provide notice of the immunity provisions in certain
agreements governing use of trade secrets or other confidential
information.
What Does the DTSA Mean for American Businesses?
Passage of the DTSA shows that trade secrets are taking greater
prominence as a favored approach for intellectual property
protection and as an alternative to patents. The DTSA also serves
as a reminder that trade secret misappropriation remains a
significant threat.
Companies should pay close attention to protection of their trade
secrets. Under the DTSA, six types of information qualify as trade
secrets: financial, business, scientific, technical, economic and
engineering information. The DTSA identifies the following examples
of trade secrets: patterns, plans, compilations, program devices,
formulas, designs, prototypes, methods, techniques, processes,
procedures, programs, or codes, whether tangible or intangible, and
whether or how stored, compiled, or memorialized physically,
electronically, graphically, photographically, or in writing.
Notably, some of these forms of trade secrets are ineligible for
patent protection.
Companies should work to identify their trade secret assets and
then assess whether they have adequate security controls over their
trade secrets. In addition, companies should consider performing a
complete audit of their trade secret protection programs to ensure
that best practices are in place for guarding these important
intellectual property assets. Companies also should take care to
ensure that they are not improperly in possession of any third
party's trade secrets.
Conclusion
Enactment of the DTSA is a milestone. Federalization of civil
trade secret law serves many important functions. The federal
courts are well equipped to adjudicate complex intellectual
property cases, whether the inventions are patented or held as
trade secrets. Federal subpoena power will assist parties in
conducting discovery in trade secret cases, and the new seizure
provisions will provide needed relief in appropriate cases. The
federal courts can more adeptly oversee trade secret disputes that
go across borders. Passage of the DTSA likely will lead to
increased reliance on trade secret protection and a more uniform
approach to the administration of trade secret disputes across the
country—benefiting the nation's businesses and
industries.
Companies need to ensure that their employment agreements and
nondisclosure agreements provide the required notice regarding the
immunity provisions of the DTSA. For information on steps for
employers to consider in providing notice of the immunity
protections in the DTSA, see Jones Day's Alert:
"Federal Defend Trade Secrets Act of 2016 Imposes New Notice
Obligations on Employers."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.