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The New Federal Defend Trade Secrets Act

Posted on Jun 2, 2016 in Blog

President Obama signed the Defend Trade Secrets Act of 2016 (S. 1890) (“DTSA”) into law on May 11, 2016, creating a new federal cause of action for trade secret misappropriation. The DTSA establishes federal jurisdiction for claims brought under the DSTA, which now provides trade secret plaintiffs with the option to sue in federal court.

Although trade secret theft has been a federal crime since 1996, state law almost always has governed civil claims for trade secret misappropriation. As a result, unless one could establish diversity or concurrent jurisdiction (and thus file in federal court), most trade secret claim plaintiffs were limited to state court. Most states, like Pennsylvania, have adopted some variation of the Uniform Trade Secrets Act (UTSA). Despite its title, however, the UTSA has suffered from a lack of uniformity due to the many variations in the state statutes adopting it. Because the DTSA does not preempt state trade secret law claims, the option to proceed under state law, and in state court, remain.

What’s New

Employers Should Update Employment Agreements

One provision of the DTSA requires immediate attention: the DTSA includes a whistleblower clause that provides immunity for disclosure of trade secrets to government officials for the sole purpose of reporting violations of the law. 18 U.S.C. § 1833(b)(1). Employers must give notice of that immunity “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” 18 U.S.C. § 1833(b)(3)(A). Employers that do not do so, cannot recover punitive damages or attorneys’ fees that may otherwise be available under the DTSA.

Therefore, employers should consider addressing this clause in their current agreements regarding trade secret information (or establishing such agreements if they do not exist) and reviewing existing employment, non-disclosure, invention assignment and other agreements that govern the use of a trade secret or other confidential information to ensure compliance with the DTSA.

Ex Parte Seizure Orders

The DTSA adds an important remedy not found in the UTSA: it provides for ex parte orders “providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret.” 18 U.S.C. § 1836(b)(2)(A)(i).

While this provision provides a significant addition to the arsenal of claims and remedies available to trade secret owners, this procedure likely will be employed infrequently, because the prerequisites for the issuance of a seizure order are quite challenging. To issue such an order, a court must find all of the following: (i) another form of equitable relief would be inadequate because the party to be enjoined would evade, avoid, or otherwise not comply; (ii) immediate and irreparable injury will occur if such seizure is not ordered; (iii) the harm to the applicant outweighs the interests of the party to be enjoined and substantially outweighs potential harm to third parties; (iv) the applicant is likely to succeed on the merits; (v) the party to be enjoined has actual possession of the trade secret; (vi) the application describes the matter to be seized with reasonable particularity; (vii) the party to be enjoined would destroy, move, hide, or otherwise make such matter inaccessible to the court; and (viii) the applicant has not publicized the requested seizure. 18 U.S.C. § 1836(b)(2)(A)(ii). An ex parte seizure order must include those detailed findings of fact and law and a number of other requirements, such as instructions that provide for the narrowest seizure of property necessary, detailed guidance to law enforcement (including permissible hours of seizure and the directions about the amount of force authorized), and instructions on protecting the seized property from disclosure. 18 U.S.C. § 1836(b)(2)(B). The burden imposed on plaintiffs preparing these applications, and courts reviewing them, is substantial.

New Disclosure Protections (for All Federal Suits)

The DTSA prohibits district courts from “authoriz[ing] or direct[ing] the disclosure of any information [a trade secret] owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential.” 18 U.S.C. § 1835(b). This provision – which is not expressly limited to DTSA cases – may have broader applicability and lead to more sealed filings and orders in other federal litigation.

What’s the Same

No Preemption

The DTSA does not preempt states’ trade secrets acts or any other state laws. 18 U.S.C. § 1836(f). Accordingly, state law causes of action, such as Pennsylvania’s Uniform Trade Secrets Act, 12 Pa. C.S. §§ 5301, et seq., should remain largely unchanged.

Similarity to Uniform Trade Secrets Act

The DTSA is modeled on the Uniform Trade Secrets Act, which is also the model for the trade secret statutes in Pennsylvania and other states. Therefore, the elements of a DTSA misappropriation claim are similar to the elements of state law trade secret claims. Compare 18 U.S.C. § 1839(3)-(6) with 12 Pa. C.S. § 5302. Given the many variations in UTSA-based statutes, however, there are significant differences that vary from state to state.

The DTSA provides the same remedies as the Pennsylvania Uniform Trade Secrets Act and most UTSA states, plus the ex parte seizure remedy. Compare 18 U.S.C. § 1836(b)(3) to 12 Pa. C.S. §§ 5303-05. It also has the same three-year statute of limitations as Pennsylvania. 18 U.S.C. § 1836(d). Importantly, like the UTSA, the DTSA states that a continuing misappropriation constitutes a single claim of misappropriation and thereby precludes arguments that each new act of misappropriation restarts the statute of limitations.

What Remains to Be Seen

The DTSA ushers in a new era in trade secret law, elevating it to the same federal protection historically enjoyed by patents, trademarks and copyrights, by providing for a federal civil cause of action for trade secret misappropriation. It remains to be seen how federal jurisprudence will develop and whether federal court will now become trade secret plaintiffs’ new forum of choice.

– by Salvatore Guerriero

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