President Obama Signs the Defend Trade Secrets Act
May 17, 2016
Last Wednesday, President Obama signed the Defend Trade Secrets Act (DTSA).
The new law will give businesses a reliable way to protect their valuable trade secrets anywhere in the country. However, the new federal law will not eliminate the various state trade secret laws currently in place. Ultimately, it means that persons or companies seeking to protect their trade secrets will be able to sue in state or federal court.
Key features of the new law include:
- Original federal jurisdiction. It will become easier to enforce trade secret rights in federal court. Current law permits parties to litigate trade secret issues in federal court (1) only under state laws, (2) only if the parties are based in different states, and (3) only if the amount in controversy exceeds $75,000. The DTSA provides for original jurisdiction of all trade secret cases brought under the Act. It does not create exclusive jurisdiction—it simply adds another option to litigate in federal court.
Parties might wish to consider adding provisions to their employment or intellectual property agreements requiring trade secret disputes to be brought in federal court under the DTSA. They should consider whether such a requirement would be advantageous for their particular needs, as compared to reliance on existing state law.
- Remedies comparable to existing state law. The DTSA was largely modeled after the Uniform Trade Secrets Act (UTSA), which has been adopted in 48 states, so many provisions are the same as or similar to various state laws. The remedies under most state trade secret laws and the DTSA, for example, include money damages, unjust enrichment, injunctive relief, reasonable royalty (in certain circumstances), exemplary damages (for willful and malicious misappropriation), and attorneys' fees.
- Civil seizure without notice to the Defendant. If circumstances require, a federal district court can issue an order seizing property without notice to the party holding the property. The DTSA makes it clear that such ex parte seizures should only take place in "extraordinary circumstances." Such extraordinary relief is theoretically available currently under most state laws but is very rare in practice. It remains to be seen whether ex parte seizures will be easier or more difficult to obtain in federal court under the DTSA.
- Injunctive relief. This provision not only allows the district court to grant injunctive relief to the aggrieved party, it also allows the court to force the wrongdoer to pay a reasonable royalty for future use of the purloined trade secret in "extraordinary circumstances" when an injunction would be "inequitable."
- The Act protects employee mobility. The Act specifically provides that employees cannot be restrained based "merely on the information the person knows," but only where there is "evidence of threatened misappropriation." The Act also provides that any injunction must be consistent with applicable state law prohibiting restraints on the practice of a lawful profession, trade, or business.
- Whistleblower protection. The Act extends immunity from civil or criminal liability to "whistleblowers" who report suspected trade secret theft. The Act requires employers to include a notice of whistleblower rights in any contract or agreement with employees, consultants, or independent contractors that governs use of trade secret or confidential information.
- The Act is intended to be broad, yet balanced. Section 5 of the Act states that by passing the DTSA, Congress intended to "balance the need to prevent or remedy misappropriation with the need to avoid interrupting the (A) business of third parties; and (B) legitimate interests of the party accused of wrongdoing." Achieving this goal will require the Courts to balance the legitimate needs of victims of trade secret theft against the interests of those who might be unjustly accused of wrongdoing.
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The DTSA will create new opportunities and new pitfalls for trade secret owners and downstream business owners alike. Please contact us if you have any questions regarding the DTSA and how it may impact your company.