Client Alerts

President Obama Signs Law Creating Federal Cause of Action for Trade Secret Theft

By: John F. Bennett

About: Trade Secret Protection & Litigation, Trade Secrets/Unfair Competition/Noncompetes

On Wednesday, May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”), which amends the Economic Espionage Act of 1996 and, most notably, creates a federal civil cause of action for trade secret misappropriation.  The DTSA received strong bipartisan support, passing unanimously in the Senate 87-0 and passing 410-2 in the House of Representatives.

Before enactment of the DTSA, parties could only bring claims for trade secret misappropriation under state law, but the individual states have not consistently implemented or enforced laws for trade secret misappropriation.  Although the DTSA does not preempt states’ trade secrets laws, the DTSA’s perhaps most-touted advantage is that it brings a uniform framework for claims for trade secret misappropriation—at least claims brought under the new DTSA.

The Definitions of “Trade Secret” and “Misappropriation” Are Consistent with State Law

In large part, the DTSA is consistent with the Uniform Trade Secrets Act (“UTSA”), which most states have adopted.  Importantly, the definitions of “misappropriation” and “trade secret” are nearly identical under both the DTSA and the UTSA.

“Misappropriation” under the DTSA includes improper acquisitionuse, or disclosure of a trade secret.  And a “trade secret” covers “all forms and types of” information, where:

The DTSA therefore can protect against misappropriation of virtually any type of company information, so long as the information has value and companies take reasonable steps to keep the information secret.

Ex Parte Seizures

The DTSA also includes a much-debated and somewhat controversial “ex parte seizure” provision, which allows plaintiffs to ask courts to order law enforcement officials to seize any property “necessary to prevent the propagation or dissemination of the trade secret.”  For parties to avail themselves of this provision, however, they must provide an affidavit or verified complaint attesting to, among other things, that the information is indeed a “trade secret” and that the defendant actually has possession of it.  Moreover, such relief can only be granted under “extraordinary circumstances,” such as where an injunction would be inadequate.  To further curb abuse of this provision, damages may be awarded to the defendant for “wrongful or excessive” seizure.

Whistleblower Protection and Mandatory Notice

The DTSA includes an immunity provision, protecting from criminal and civil liability disclosures of trade secrets made “in confidence” to governmental officials or “solely for the purpose of reporting or investigating a suspected violation of law.”

For businesses, this immunity provision is particularly important because the DTSA requires employers to provide notice of this immunity to employees and contractors in any agreement that “governs the use of a trade secret.”  The notice must appear in all such agreements “entered into or updated after the date of enactment [of the DTSA.]”  Employers who fail to provide the required notice will be prohibited from receiving enhanced damages or attorney fees from employees or contractors who did not receive the notice.

The DTSA provides greater access to the federal courts for misappropriation claims and will most certainly increase trade secret litigation.  Not only should businesses audit their agreements related to trade secrets to determine whether the immunity notice is required, passage of the DTSA can serve as a reminder to revisit policies for protecting valuable trade secret information.

The DTSA is a comprehensive set of laws, and this client alert is not meant to be an exhaustive explanation of the Act.  Rather, it is meant to summarize and highlight some of the more interesting provisions of the DTSA.  Should you have any questions about the DTSA or trade secret law in general, please contact John F. Bennett.