It’s a rare occasion that Congress actually agrees on something these days, but on April 27, 2016, the Defend Trade Secrets Act (DTSA) passed in the House and Senate by a sweeping majority. The bill is designed to prevent actual and threatened theft of business trade secrets, by allowing trade secret owners to bring a claim for misappropriation in federal court, as long as “the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” On May 11, President Obama signed the DTSA into law. Prior to the passage of the DTSA, trade secret litigation used to be handled solely under state laws, many of which were modeled after the Uniform Trade Secrets Act of 1996 (UTSA). While this shared legislative model allowed for some uniformity, Congress wanted to address the differences that exist in specific statutory provisions and case law, from state to state. The DTSA does not pre-empt these state laws, but rather makes a new federal remedy available for trade secret owners bringing misappropriation claims.
What is a trade secret?
A trade secret is a formula, process, technique, program, method, design, instrument, or compilation of information by which a business can gain an economic advantage over its competitors by virtue of it a secret. It is legally protectable under state law, federal criminal law, and now, federal law under the DTSA.
While the precise language defining a trade secret differs from one jurisdiction to the next, in general, three factors are in common. First, the trade secret is not generally known to the public. Second, the economic benefit is derived from the fact that the trade secret is not generally known. Third, the trade secret is subject to reasonable measures to protect its secrecy.
The DTSA defines misappropriation as the disclosure or use of a trade secret that was acquired through “improper means,” which include “theft, bribery, misrepresentation, breach…or espionage through electronic or other means.”
How does the DTSA protect trade secrets?
A trade secret owner can seek injunctive relief, compensatory damages, recovery of attorneys’ fess, and punitive damages equal to two times the amount of damage the misappropriation caused. This is similar to the UTSA. However, the DTSA introduces several new aspects to trade secret litigation.
Most significantly, trade secret owners can now bring a claim for misappropriation under federal law, and in federal court. Also, the new law allows for an ‘ex parte’ seizure order in “extraordinary circumstances.” If certain conditions are met, the government can seize property before notifying the defendant, so as to avoid dissemination of trade secrets by the defendant.
The DTSA provides whistleblower immunity to an employee or contractor that discloses a trade secret to law enforcement because of a suspected violation of law. This information must be presented in a sealed court filing to local, state, or government officials.
In order to obtain monetary damages in trade secret legal proceedings, businesses need to provide notice of whistleblower immunity to their employees and contractors. This corporate notice requirement applies only for agreements made on or after May 11, the date the bill was signed into law. Misappropriation claims cannot be brought in federal court more than three years after the misappropriation occurred, or should have been discovered.
The law also seems to permit a party to bring an action against a foreign entity. Congress addressed concerns about a rise in trade secret theft by foreign hackers. Particularly, the law seems to respond to reports that the Chinese government is sponsoring cyber attacks against top U.S. companies. The DTSA addresses emergent cyber-espionage threats to large, targeted companies, but also protects the interests and valuable information of smaller businesses. Educate your employees about the protection of your business’ trade secrets, with knowledge of the new federal remedy that is available through the DTSA.