Trade Secrets Litigation Options Will Significantly Expand With Federal Defend Trade Secrets Act
The U.S. House overwhelmingly passed the Defend Trade Secrets Act of 2016 (DTSA) on April 27, 2016, about two weeks after the same bill received unanimous support in the Senate. President Obama has previously stated that he supports the DTSA and will sign it into law.
This act has been described as the most significant expansion of federal intellectual property law since the Lanham Act (protecting trademarks) was enacted in 1946.
For the first time, the DTSA will create a federal private right of action for trade secret misappropriation. Historically, trade secret battles were largely fought in state courts. Although almost all states adopted some version of the Uniform Trade Secrets Act, designed to bring uniformity to trade secret law, there is still significant variation in both states’ statutes and the case law interpreting those statutes. These differences pose challenges for businesses and individuals seeking to protect and recover for theft of their trade secrets. Although the DTSA does not preempt any state laws, it may provide greater predictability by permitting litigants to file suit under a single body of law in federal courts, which many experts believe are best suited to hear complex suits with highly technical facts.
In addition to increased uniformity and access to the federal judiciary, the DTSA contains several noteworthy provisions:
- Civil Seizure: Unlike the Uniform Trade Secrets Act, the DTSA provides litigants the right to seek an ex parte seizure order where “necessary to prevent the propagation or dissemination” of a stolen trade secret. The court may issue the order without notice to the party from whom the property will be seized. The DTSA recognizes the seizure remedy should be used only in “extraordinary circumstances.” Importantly, the DTSA anticipates the potential seizure of electronically stored information and contains provisions governing the court’s handling and storage of such information.
- Remedies: Similar to the Uniform Trade Secrets Act, the DTSA also allows litigants to seek several remedies for misappropriation of trade secrets, including an injunction; damages; exemplary damages for willful and malicious misappropriation, up to two times the amount of damages awarded; and attorneys' fees to the prevailing party in certain circumstances. The DTSA places a three-year statute of limitations on actions for misappropriation of trade secrets.
- Immunity for Confidential Disclosure: The DTSA’s “whistleblower” provision provides immunity from civil or criminal liability to any person who confidentially discloses a trade secret to a government official or to an attorney for the sole purpose of reporting or investigating a suspected violation of the law. The same immunity applies if the disclosure is made in a complaint or other document filed in a lawsuit or other proceeding, if the filing is made under seal. Critically, once it goes into effect, the DTSA requires employers to provide notice of these immunity provisions “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Rather than modify their existing policies, an employer can satisfy this requirement by cross-referencing a currently existing policy document provided to the employee that sets out the employer’s reporting policy for a suspected violation of the law. If an employer fails to satisfy this requirement, the employer cannot recover exemplary damages or attorneys’ fees in any action against an employee who did not receive notice of the immunity provisions.
Businesses should prepare for the enactment of the DTSA now by reviewing and, where necessary, updating their contracts and other agreements regarding protection of trade secrets or other confidential information. When an employer’s trade secrets are misappropriated, employers should consult counsel to determine the remedies and courses of action available to them under federal and state law.