On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (DTSA) into law, amending the Economic Espionage Act to create a new federal civil cause of action for trade secret misappropriation. The new federal statute does not replace the existing trade secret laws currently in place in each state. State trade secret laws will continue to exist in parallel.
Compared to other areas of intellectual property law, the DTSA resembles federal trademark law under the Lanham Act, which does not preempt state common law trademark and unfair competition causes of action, but is unlike patent and copyright law, which largely displaces state law. Federal courts construing the new statute likely will lean on case law developed under the state law Uniform Trade Secrets Act, just as they have done when construing the federal Economic Espionage Act.
Because the district courts of the United States will have original jurisdiction over civil actions brought under the DTSA, it is likely that those courts will exercise supplemental jurisdiction to hear related claims for breach of contractual confidentiality provisions and non-competition clauses.
Standing
Trade secret litigants may sue under the DTSA for any acts of misappropriation occurring on or after the date of its enactment. However, the DTSA does not provide standing for trade secret owners whose secrets are not used or intended for use in interstate commerce. Therefore, some cases may not qualify for federal court—for example, a case between two small business owners over a local customer list.
Key Provisions
The DTSA's provisions largely mimic the Uniform Trade Secrets Act (UTSA), the act upon which almost all states have modeled their trade secret laws. For instance, the DTSA directly tracks the UTSA in its provision of attorneys' fees to the prevailing party for actions brought in bad faith or where the misappropriation was willful and malicious. The DTSA has also adopted the same three-year statute of limitations as the UTSA. However, the new federal statute does contain a few important variations.
Preventing Injunctions Limiting Employee Mobility
Unlike the UTSA, the DTSA includes an explicit provision barring courts from issuing injunctions that "prevent a person from entering into an employment relationship" or "otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business."
Moreover, any order placing conditions on an employment relationship must be "based on evidence of threatened misappropriation and not merely on the information the person knows." This provision differs from laws in those states that permit speculation-based injunctions preventing employees from changing jobs based on a former employer's prediction of future misconduct.
Many states have adopted the UTSA in a modified form so as to harmonize its implementation with other state-specific laws protecting employee mobility, such as laws barring non-compete agreements or laws rejecting the doctrine of inevitable disclosure. The employee mobility provisions in the DTSA were likely included by Congress with this concern in mind.
Civil Seizure Provision
The DTSA contains a unique provision allowing courts to issue ex parte orders for the seizure of property to prevent the propagation or dissemination of trade secrets. However, this provision is only to be exercised under "extraordinary circumstances," and the applicant seeking the order must demonstrate that:
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other forms of equitable relief would be inadequate;
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immediate and irreparable injury would occur absent the order;
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the harm to the applicant of denying the application would outweigh the harm to the legitimate interests of the party against whom the seizure would be ordered or to any third parties who may be impacted by the seizure;
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the applicant is likely to succeed in proving that the property at issue is a trade secret and that the party against whom the seizure would be ordered either misappropriated or conspired to misappropriate that trade secret; and
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the party against whom the seizure would be ordered has actual possession of the property to be seized and would destroy, conceal, or otherwise make the property inaccessible to the court if the party was given prior notice of the seizure.
The ex parte application must also describe in detail the property to be seized, and, to the extent reasonable, its location.
If a court grants a seizure order, law enforcement officials will perform the seizure with explicit guidance from the court as to the hours during which the seizure may take place and whether or not force may be used to access locked areas. The applicant may not publicize the requested seizure order either before or after it is granted. If the property is seized, the court will take custody of the property pending the outcome of a hearing on the order and will prohibit both physical and electronic access by the parties. Additionally, any party who has an interest in the property seized can make a motion to encrypt any material seized or to be seized that is stored on an electronic storage medium.
The court must hold a hearing on the order within seven days of its issue, and the party seeking the order must provide security in an amount specified by the court for the payment of damages to any person entitled to recover in the event it is determined that the seizure or attempted seizure was wrongful or excessive. The party that obtains a seizure order will have the burden of proof at the hearing to demonstrate the facts necessary to support the order. Failure to meet that burden will result in the dissolution or modification of the seizure order.
Protection of Whistleblowers
The DTSA also includes a unique set of provisions designed to protect whistleblowers. The first provision grants immunity from civil or criminal liability for misappropriation to any individual who confidentially discloses a trade secret to an attorney, government official, or the court through a document filed under seal for the purpose of reporting or investigating a suspected violation of law.
The second provision grants the same immunity to an individual who files an anti-retaliation lawsuit against an employer for reporting a suspected violation of law, allowing the individual to disclose trade secret information to her attorney and use it in a court proceeding, provided any document containing the trade secret information is filed under seal. Employers are required to provide notice of this provision in any contract or agreement with an employee that governs the use of a trade secret or other confidential information entered into or updated after the DTSA's enactment. The notice requirement applies to contractors and consultants as well as traditional employees. An employer may not be awarded exemplary damages or attorney's fees in an action for trade secret misappropriation against an employee to whom notice was not provided.
Conclusion
While the DTSA was enacted with the goal of creating a nationwide, uniform set of standards governing trade secret law, its enactment presents new substantive and jurisdictional opportunities for trade secret litigants.
