The Defend Trade Secrets Act – Providing More Protection for Trade Secret Owners

On May 11, 2016, the Defend Trade Secrets Act of 2016 (the “DTSA”) was signed into law by President Obama, thereby establishing the first private federal cause of action for the theft or misappropriation of trade secrets related to products or services used, or intended for use, in interstate or foreign commerce. The result of this is that the DTSA provides for a fourth category of intellectual property that is protected by federal statute, in addition to patents, copyrights and trademarks. Specifically, the DTSA is an extension of the federal Economic Espionage Act of 1996 (“EEA”), which previously provided only criminal remedies for the theft of trade secrets. The DTSA adopts the EEA’s broad definition of trade secrets which includes financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs or codes. The DTSA’s definition of trade secrets is generally broader than state laws; however, the DTSA does not preempt those state trade secret laws, namely the Uniform Trade Secrets Act. Accordingly, a party can now choose its favored forum when bringing actions for trade secret misappropriation. In so doing, one should consider aspects of the DTSA that are unique from its state-law counterparts.

Unlike state trade secret laws, the DTSA allows trade secret owners to submit ex parte applications to the federal court seeking the seizure of trade secret protected property in order “to prevent the propagation or dissemination of the trade secret that is the subject of the action.” In other words, a trade secret owner can seek relief from the court without first providing advance notice to the party who allegedly misappropriated the trade secret. However, this provision can only be relied upon if, among other things, the trade secret owner demonstrates that injunctive or other equitable relief would be inadequate, the owner will suffer immediate and irreparable injury were a seizure not granted, and the owner is likely to succeed in showing that the property is a trade secret that has been misappropriated. Despite its limitations, the ability to obtain ex parte relief provides trade secret owners with a powerful incentive to bring their claims in federal court. Also, in addition to this relief, a party bringing a claim under the DTSA may recover injunctive relief, actual damages, restitution, exemplary damages where the trade secret is willfully and maliciously misappropriated and attorney’s fees.

Another notable feature of the DTSA is that it protects “whistleblowers” and provides both civil and criminal immunity to individuals that provide confidential disclosure of trade secrets to the government for the purposes of investigating a suspected violation of the law or for disclosing trade secrets in court filings that are made under seal. Further, the DTSA requires that an employer “provide notice of the immunity . . . in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” An employer’s failure to include this notice provision would preclude that employer from being awarded exemplary damages or attorney’s fees in an action brought pursuant to the DTSA. An employer will be considered compliant with this requirement if it “provides a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.” Accordingly, employers should be cognizant of this new requirement and update any policy documents or employment contracts going forward to ensure that, in any DTSA actions it may need to file, it will not be precluded from obtaining awards of exemplary damages and attorney’s fees.

Businesses of all sizes and across all industries have trade secrets that fall within the broad definition and protections of the DTSA. These trade secrets are in jeopardy almost any time an employee is hired or terminated, or even where an employee is considering moving to a competing entity. Thus, the DTSA is a valuable avenue for owners of trade secrets to protect their rights against the theft or misappropriation of those trade secrets through an action filed in federal court.