Are You Ready for the Defend Trade Secrets Act? | Practical Law

Are You Ready for the Defend Trade Secrets Act? | Practical Law

A summary of the key elements of the Defend Trade Secrets Act, which creates a federal, civil remedy for trade secret misappropriation. It provides for, among other things, ex parte seizure of property from the party accused of misappropriation in certain circumstances, equitable remedies and damages awards consistent with, in certain respects, the Uniform Trade Secrets Act, and, in certain situations, protections for whistleblower employees.

Are You Ready for the Defend Trade Secrets Act?

Practical Law Legal Update w-002-1894 (Approx. 5 pages)

Are You Ready for the Defend Trade Secrets Act?

by Practical Law Intellectual Property & Technology
Law stated as of 02 May 2016 • USA (National/Federal)
A summary of the key elements of the Defend Trade Secrets Act, which creates a federal, civil remedy for trade secret misappropriation. It provides for, among other things, ex parte seizure of property from the party accused of misappropriation in certain circumstances, equitable remedies and damages awards consistent with, in certain respects, the Uniform Trade Secrets Act, and, in certain situations, protections for whistleblower employees.
On April 4, 2016, the US Senate passed the Defend Trade Secrets Act of 2016 (DTSA) and shortly after, on April 27, 2016, the US House of Representatives also passed the act. With President Obama's signature on May 11, 2016, the DTSA:
  • Creates a federal, civil remedy for trade secret misappropriation.
  • Provides for ex parte seizure of property from the party accused of misappropriation in certain circumstances.
  • Authorizes equitable remedies and the award of damages consistent with, in certain respects, the Uniform Trade Secrets Act (UTSA), including enhanced damages for willful and malicious misappropriation.
  • Provides protection for whistleblower employees in certain circumstances.

Federal Civil Remedy for Trade Secret Misappropriation

Although the DTSA creates a federal, civil remedy for trade secret misappropriation, it does not preempt state law. Instead the DTSA operates in parallel with state law. For more information on state trade secret laws, see Trade Secret Laws: State Q&A Tool.
The DTSA is aligned in many respects with the UTSA, so that:
  • The misappropriation definitions are generally the same.
  • The statute of limitations for both is three years.
  • The provisions for damage awards are generally the same.
In addition to creating a federal cause of action for trade secret misappropriation, the DTSA also contemplates addressing the theft of trade secrets used in or intended for use in foreign commerce. Since the DTSA amends the Economic Espionage Act (18 U.S.C. § 1831, et seq.), which applies to conduct occurring outside the US in certain circumstances, it is likely that the DTSA will be used to try to address trade secret theft occurring outside the US.
The DTSA was effective as of its enactment date, May 11, 2016, and applies to any misappropriation that occurs on or after that date.

Seizure of Property from the Party Accused of Misappropriation

In extraordinary circumstances, the trade secret owner may obtain expedited relief in the form of a seizure order to prevent the propagation or dissemination of the trade secret. The DTSA sets out a number of requirements concerning seizure, including that:
  • The applicant for seizure:
    • is likely to succeed in showing that the information is a trade secret and the person against whom seizure would be ordered misappropriated, or conspired to misappropriate, the trade secret by improper means;
    • has not publicized the requested seizure; and
    • provide security sufficient to cover damages for wrongful or excessive seizure.
  • The person against whom seizure would be ordered has actual possession of the trade secret and any material to be seized.
  • The application for seizure describes with reasonable particularity the material to be seized and its location.
  • The person against whom seizure would be ordered, or persons acting in concert with that person, would make the material to be seized inaccessible to the court if the applicant were to proceed on notice to such person.
The court may:
  • Appoint a special master to locate and isolate the trade secret information and facilitate the return of unrelated property to the owner.
  • Allow:
    • state or local law enforcement officials to participate in the seizure along with federal law enforcement officials, but not the seizure applicant or its agent; and
    • a neutral technical expert to participate in the seizure to minimize the burden of the seizure.
Victims of wrongful seizure may be entitled to the same relief as provided under Section 34(d)(11) of the Lanham Trademark Act, which includes damages for lost profits, cost of materials, loss of goodwill, and punitive damages where the seizure was sought in bad faith, and reasonable attorneys' fees in certain circumstances (15 U.S.C. § 1116(d)(11)).

Remedies Under the DTSA

The DTSA, like the UTSA, provides for:
  • Equitable remedies. Even though the DTSA allows for an order against threatened misappropriation, the order must not:
    • prevent a person from entering into an employment relationship;
    • place conditions on such employment except where they are based on evidence of threatened misappropriation and not merely on the information the person knows; or
    • conflict with state law prohibiting restraints on the practice of a lawful profession, trade, or business.
    For more information concerning the inevitable disclosure doctrine, which these limitations are meant to address, see Practice Note, Trade Secrets Litigation, Inevitable Disclosure of Trade Secrets.
  • Monetary damages, which may include:
    • compensatory damages based on actual loss and unjust enrichment caused by the trade secret misappropriation; or
    • a reasonable royalty for the trade secret's use or disclosure.
  • Enhanced damages of up to twice the damages award for willful and malicious misappropriation.
  • An award of attorney's fees to the prevailing party if:
    • a misappropriation claim is made in bad faith;
    • a motion to terminate an injunction is made or opposed in bad faith; or
    • willful and malicious misappropriation exists.

Whistleblower Protection

An employee, which includes contractors and consultants, who discloses a trade secret is protected from criminal and civil liability under the DTSA and any state trade secret law if the trade secret disclosure is made either:
  • In confidence to a federal, state, or local government official or to an attorney and solely to report or investigate a suspected violation of the law.
  • Under seal in a complaint or other document filed in a lawsuit or other proceeding.
In addition, employers must provide a notice to its employees of the DTSA's protection in any contract with the employee that governs the use of a trade secret or other confidential information. Failure to do so could deprive the employer of any right to punitive damages or attorneys' fees in an action against the employee.