Federal Trade Secrets Act Signed into Law
On May 11, President Barack Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law, thereby creating, for the first time, a federal system of trade secrets law.
Historically, victims of trade secrets misappropriations were limited to the remedies provided by applicable state law. While each state’s regulatory scheme generally follows the same statutory blueprint, major differences between state laws remain. The DTSA aims to provide greater predictability to trade secrets law across state lines, allowing companies easier access to federal courts and governance under a uniform national law.
Importantly, the new law does not preempt state regulatory schemes. Rather, the DTSA supplements existing state law, offering a federal option for recovery.
The DTSA, which was introduced in its current form in July 2015 and passed by the Senate and the House in April 2016, is not a stand-alone law. It is an amendment to the Economic Espionage Act of 1996 (“EEA”), which criminalizes certain misappropriations of trade secrets. The DTSA modifies the EEA’s definitions of “trade secret” and “misappropriation” and extends the reach of the EEA to private civil actions.
- Under the traditional definition, to be a trade secret, the information at issue must derive independent economic value “from not being generally known to, and not being readily ascertainable through proper means by, the public.” The DTSA removes “the public” as the relevant body of individuals and replaces it with “another person who can obtain economic value from the disclosure or use of the information.” In this way, the DTSA puts a sharper point on the standard for establishing a trade secret’s economic value.
- The DTSA provides a comprehensive definition of “misappropriation” that was not included in the original EEA. Under the DTSA, “misappropriation” is the acquisition, disclosure or use of a trade secret of another, without consent, by a person who knows or has reason to know that the trade secret was acquired by improper means or mistake or under circumstances giving rise to a duty to maintain the secrecy of the trade secret.
In addition to these key definitional modifications, the DTSA includes three important provisions:
Interstate Commerce Requirement
- Drawing its authority from the Constitution’s Commerce Clause, the DTSA allows “[a]n owner of a trade secret that is misappropriated [to] bring a civil action … if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”
Ex Parte Seizure
- Perhaps most controversially, the DTSA permits the seizure of offending property upon ex parte application to a court with jurisdiction, though only in extraordinary circumstances, where seizure is necessary to prevent the propagation or dissemination of the trade secret(s) at issue. As a safeguard, the DTSA includes a sister provision allowing for recovery where an individual has been damaged by wrongful or excessive seizure, adopting the relief offered by section 34(d)(11) of the Trademark Act of 1946.
- Lastly, the DTSA protects whistleblowers from liability (whether civil or criminal, state or federal) for the confidential disclosure of trade secrets for the purpose of reporting or investigating a suspected violation of law. Where employers include trade secret clauses in employee contracts or agreements, information related to this whistleblower immunity must be included therein. Failure to do so results in the employer forfeiting exemplary damages (up to two times the amount of compensatory damages) and an award of attorney’s fees in any action brought against an employee who was not properly notified. Under the DTSA, “employee” is broadly defined to include independent contractors or consultants. To protect these important means of recovery, employers should review and possibly revise all contracts, agreements or policy documents referencing the use of trade secrets or any other confidential information.
The DTSA applies to all acts relating to the misappropriation of trade secrets occurring on or after the date of the DTSA's enactment, May 11, 2016. Within the next two years, we can expect the Federal Judicial Center to develop recommended best practices for seizing, storing and securing offending property under the DTSA.
In practice, employers who utilize trade secret protection plans would be wise to seek legal review of their contracts and other employee documents, lest unrevised documents prevent recovery of significant awards now available to them under the DTSA’s imposition of federal civil liability on trade secret offenders.
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