Insight

The Defend Trade Secrets Act of 2016: A New Federal Civil Cause of Action for Trade Secret Theft

"It represents one of the most significant events in trade secret reform in years. The DTSA amends the Economic Espionage Act, which previously limited access to federal courts for trade secret theft to criminal prosecution."

Defend Trade Secrets Act
Randal J. Brotherhood

Randal J. Brotherhood

November 30, 2016 12:00 AM

The Defend Trade Secrets Act of 2016, which establishes a new federal civil cause of action for trade secret theft, represents one of the most significant events in trade secret reform in years. This new law toughens and modernizes trade secret law in numerous respects, and provides an additional tool for businesses and their legal counsel to protect trade secrets.

The Defend Trade Secrets Act of 2016 (Pub. L. No. 114-153) (DTSA), signed into law by President Barack Obama on May 11, 2016, establishes a new federal civil cause of action for trade secret theft.

It represents one of the most significant events in trade secret reform in years. The DTSA amends the Economic Espionage Act, which previously limited access to federal courts for trade secret theft to criminal prosecution.

The new law toughens and modernizes trade secret law in a number of ways:

1. Establishes Federal Jurisdiction

The DTSA establishes, among other things, federal jurisdiction for claims brought under its provisions – creating a federal private right of action for trade secret misappropriation, as well as corresponding access to federal courts to sue for injunctive relief, compensatory damages, and exemplary damages (including double damages and attorneys’ fees) for willful and malicious misappropriations.

Lawsuits for trade secret theft have traditionally been brought in state courts under state law. Although a substantial majority of states have adopted some form of the Uniform Trade Secrets Act — providing some uniformity among state trade secrets laws – there are nonetheless numerous differences among the states in the protection afforded trade secrets.

The DTSA, in establishing a federal private right of action, allows a trade secret plaintiff to obtain redress nationwide without having to encounter the various differences in state laws. This will likely give rise to more consistent and predictable outcomes in trade secret litigation. It should be noted, however, that it is nonetheless expected that certain situations will remain, where trade secret plaintiffs will decide for strategic purposes to still bring state law claims in state courts rather than utilizing the DTSA and federal courts.

2. Provides for Ex Parte Court Order for Seizure of Trade Secrets

Perhaps the most noteworthy, the DTSA provides a significant new tool for a plaintiff to obtain an ex parte court order to seize a trade secret by law enforcement officials and bring it within the custody of the court (a hearing being conducted within seven days with all parties present). This new remedy is available only in “extraordinary circumstances” where such seizure is “necessary to prevent the propagation or dissemination of the trade secret … ,” such as to prevent imminent disclosure or the risk of flight to another country. The court is required to balance various interests in determining whether to issue a seizure order; accordingly, a request for such an order must meet various specified requirements and be circumscribed so as to avoid “interrupting the legitimate interests of the party against whom the seizure is issued,” while addressing the need to “prevent or remedy” the misappropriation.

3. New Provisions for Trade Secret Misappropriation of Electronically Stored Information

The DTSA contains numerous new provisions that address trade secret misappropriation involving electronically stored information – thus modernizing the ways a court is to protect seized materials. In this regard, the DTSA requires a court that seizes trade secret material to secure it from physical and electronic access during the seizure and while it is the court’s custody. The court may appoint an independent technical expert to participate in the seizure if the court finds it would help minimize burdens created by the seizure. The court may also appoint a special master to locate and isolate stolen trade secret information. If a person whose assets have been seized suffers damage as a result of an excessive or wrongful seizure, the DTSA provides for a private cause of action against the person who sought the seizure.

4. New Whistleblower Provisions

The DTSA includes a whistleblower provision that establishes immunity for disclosure of trade secrets to government officials for the sole purpose of reporting violations of the law. In this regard, the DTSA has significant implications for employee agreements by requiring notice of these whistleblower immunity protections. If an employer does not receive proper notice, the employer may not be awarded exemplary damages or attorneys’ fees that would otherwise be available under the DTSA. Accordingly, employers should review existing employment, confidentiality and proprietary ownership agreements and consider including a standard notification clause to the effect that the employee will not be held criminally or civilly liable for disclosure of a trade secret that is either (a) made in confidence to a government official or an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (b) is made in a document filed under seal in a lawsuit or other proceeding. Employers will also want to consider establishing a trade secret policy with such a notification clause (which policy can be referenced in the above-described whistleblower/immunity notification provisions in its employment agreements.)

5. No Pre-emption of State Trade Secrets Act

The DSTA does not pre-empt state trade secret acts or any other state laws, so trade secret owners may, as stated above, choose to pursue relief in federal or state court, depending on the circumstances.

Conclusion

The DTSA represents the start of a new era in the development of trade secrets law by establishing a federal right of civil action for trade secret theft. Whether federal courts will in fact become the preferred forum for trade secret litigation is an issue which is sure to be closely watched; but in any event, the DTSA can be considered an additional tool for businesses and their legal counsel to protect trade secrets.

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