ihwlaw

Law Blog – Business Law & Litigation

New I.P. Ammo and Worker Rights – The Federalization of Civil Trade Secrets Law

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (the “DTSA”), creating a new federal civil claim for misappropriation of trade secrets and adding measures beyond those available under state law that give trade secret owners more fire power against trade secret theft but which also create more responsibility on employers as well as more protection for workers.

First, the basics.  Until now, only state law provided a civil claim for misappropriation of trade secrets.  And, while all but two states have adopted the model Uniform Trade Secrets Act (“UTSA”) – New York and Massachusetts being the exceptions with their own trade secret laws, aspects of many state laws still vary from state-to-state, making a truly uniform national trade secrets law unavailable until now.  The DTSA creates a new civil claim for misappropriation of trade secrets that can be asserted in federal court by any trade secret owner against anyone “if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”  DTSA, s.2(b)(1).  Under the DTSA, a trade secret is defined essentially the same as it is defined under state law: any information where (A) “the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.”  DTSA, s.4(a)(2) (“trade secret” has same meaning as 18 U.S.C. s. 1839).

Next, the new fire power of the DTSA.  Until now, unless a theft of trade secrets was criminal – a high bar, the only form of immediate relief an owner could obtain was a temporary restraining order (TRO) or other injunction to stop the thief from using or disseminating a trade secret, and potentially requiring a thief to turn over property containing trade secret information.  Now, under the DTSA, a trade secret owner can ask a court – without any notice to the alleged thief (an “ex parte” request) – to order law enforcement to seize property that is “necessary to prevent the propagation or dissemination of the trade secret” that is the subject of the lawsuit.  DTSA, s. 2(b)(2)(A)(i).  Notably, however, such ex parte seizures may only be granted “in extraordinary circumstances” where it appears from “specific facts” that a TRO is inadequate because the party against whom the order is sought would “evade, avoid or otherwise not comply with such an order.”  DTSA, s. 2(b)(2)(A)(ii).  Other limitations make this remedy unlikely in all but the most extreme cases, not only because of the cost of seeking it but the potential penalty of paying actual and punitive damages and attorney’s fees to a party against whom a wrongful or excessive seizure was obtained.

Finally, the underbelly of the DTSA for trade secret owners.  In addition to protecting defendants against unjustified seizures, the DTSA also prohibits injunctions that “prevent a person from entering into an employment relationship” and requires that any conditions placed on such employment “shall be based on evidence of threatened misappropriation and not merely on the information the person knows.”  DTSA, s. 2(b)(3)(A)(i)(1)(I) (emph. added).  Further, the DTSA also protects whistleblowers (e.g., workers who report illegal activities) by providing immunity for disclosing trade secrets to attorneys or government officials and by requiring that employers provide employees with notice of this immunity on pain of losing the right to punitive damages and attorney fees in a lawsuit against an employee for violation of any trade secrets laws.  To clarify, the DTSA defines “employee” to include any person who works “as a contractor or consultant for an employer.”  DTSA, s. 2(b)(4).  Put together, the provisions of the DTSA that protect workers provide a clear message to employers that the DTSA does not only exist for their benefit.

In sum, the DTSA creates a bundle of new tools for trade secret owners to defend against trade secret misappropriation and provides defendants and workers with a bundle of new rights to help ensure the new tools are not abused. Put together, the DTSA is a significant advance in trade secrets law which, if nothing else, will serve to fuel the engine of litigation on both sides of the divide between owners and individuals who create and work with trade secret information.

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