President Barack Obama signed into law Wednesday, May 11th, a bill that will provide protection for trade secrets on the federal level.
This new legislation, called the Defend Trade Secrets Act of 2016, or DTSA, has been hailed by commentators as an extremely significant addition to federal intellectual property law. The DTSA was created as an amendment to the Economic Espionage Act of 1996 to provide civil remedies for trade secret violations under federal law. While some potential issues exist, I believe that this new law should be beneficial to many companies because of the possible increased trade secret protection and aggressive potential remedies that it will provide.
Trade secret protection in the U.S. has primarily been available under applicable state law. The Uniform Trade Secrets Act provides some consistency, and it has been adopted by 48 states. The trade secret laws of the various states are not totally uniform, however, and this has sometimes made it difficult for companies to protect their trade secrets under the various state laws. Legal actions involving trade secret protection have generally been brought in state courts. Since the DTSA is a federal law, more trade secret actions will now be able to be brought in federal court, providing an additional potential venue for these actions.
The DTSA does not replace or preempt existing state laws. As a result, this could be an advantage to companies as it may provide a separate method of protecting their trade secrets. The DTSA also defines trade secrets a little more broadly, using “public economic value” as the heart of the trade secret definition. This broader definition of what constitutes a trade secret may expand the range of information that a company can claim as a trade secret.
That said, there is a potential problem here: the DTSA does not provide a uniform system of trade secret law and instead establishes a federal level of trade secret law on top of the existing states’ trade secret laws. This could increase the number and the complexity of legal actions involving trade secrets. Therefore, a company that wishes to assert a trade secrets action will need to analyze which court — state or federal — will be more advantageous, and this will likely vary with the different circumstances of each situation.
The DTSA contains fairly aggressive potential remedies that may be advantageous to companies which believe that a trade secret violation has occurred. The provision that has drawn the most interest is the ability of a court to issue an ex parte seizure order in certain extraordinary circumstances.
This means that a court could order that property be seized from a third party if necessary to protect a company’s trade secrets, and this could be done based on the company’s ex parte motion (i.e., without the participation of the third party). This is potentially a powerful weapon in the trade secret protection process, but it is too early to tell how frequently a court will allow a company to utilize this aggressive remedy.
The DTSA contains a list of items that must be satisfied before this aggressive remedy can be granted, but this relief will be available if these extraordinary circumstances standards can be met. Again, this and the other remedies available under the DTSA are in addition to any remedies that are available under applicable state trade secret laws.
The DTSA also provides some immunity to whistleblowers for the confidential disclosure of trade secret information to attorneys or government officials in connection with suspected legal violations. Employers should take note that the DTSA requires them to disclose this immunity right to employees who have employment contracts, either directly or through a policy statement, which may be cross-referenced. Importantly, failure to make this disclosure will prevent an employer from receiving its attorney fees or exemplary damages under the DTSA. Employers will generally need to update the appropriate documents to reflect the DTSA’s new requirements.
The DTSA might also cause an increase in the instances of foreign companies attempting to protect their trade secrets here in the United States. It is clear that some other countries see trade secret protection as a critical element of their intellectual property law as demonstrated by the recent passage of the EU Trade Secrets Directive, the first real attempt in the EU to set minimum standards for trade secret protection. However, U.S. trade secret law is still widely seen as providing the most protection available, and this perception should increase when the DTSA becomes law.
Some aspects of the DTSA are unlikely to succeed. One of the primary driving forces for the DTSA was Congress’ concern over nefarious activities by foreign governments and cyber criminals involving trade secrets. Unfortunately, the DTSA will not significantly impact either of those situations. Additionally, the lack of state law preemption and the failure to create a uniform trade secret law may cause confusion and may actually increase the number of legal actions in this area, although this may provide additional opportunities for relief for a company who is alleging a trade secret violation).
Reprinted with permission from the May 17 issue of Daily Business Review. © 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or firstname.lastname@example.org.