The Defend Trade Secrets Act Creates Federal Trade Secret Cause of Action with Enhanced Remedies and Protections
President Obama signed the Defend Trade Secrets Act (DTSA) on May 11, 2016, establishing a federal civil cause of action for misappropriation of trade secrets. The DTSA creates federal question jurisdiction for trade secret misappropriation and a single body of federal trade secret law, applicable nationwide. The DTSA will not displace trade secret protection currently available under state law, but like the Lanham Act, the federal law governing trademarks, the DTSA will provide an additional source of intellectual property protection, including access to the broad discovery rules available in federal court, such as nationwide subpoena power.
The goal of the DTSA is to bring protections for trade secrets on par with those afforded to patents, copyrights and trademarks through the development of a more uniform body of federal law. To date, such rules have been the province of state law; although most states adopted some version of the Uniform Trade Secrets Act, that adoption has not been uniform and the applicable law has therefore been subject to jurisdiction-by-jurisdiction variations. Now, under the DTSA, an aggrieved party will have access to federal court for trade secret misappropriation claims, without having to first establish independent federal jurisdiction by tacking on an additional federal claim or showing diversity of citizenship. A private civil action for trade secret misappropriation under the DTSA must be commenced within “3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered.” Additionally, the DTSA does not apply retroactively; rather, it applies to misappropriation occurring on or after the date of the DTSA’s enactment (May 11, 2016).
The available remedies under the DTSA generally track state law provisions, and include:
- Injunctions (with certain limitations) for actual or threatened misappropriation;
- Monetary damages for actual loss and unjust enrichment, or a reasonable royalty; and
- In the cases of willful and malicious misappropriation, exemplary damages of up to two times the amount of monetary damages and reasonable attorney’s fees.
The plaintiff also can be required to pay the defendant’s reasonable attorney’s fees if the defendant proves that the plaintiff filed a DTSA claim or resisted a motion to terminate an injunction in bad faith.
The DTSA includes provisions that go beyond the protections provided under many states’ laws. For example, the DTSA includes an ex parte seizure provision, similar to the seizure provisions in the Lanham Act, authorizing courts to issue an order for the seizure of property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” Such a seizure can be carried out without notice to the defendant but only in “extraordinary circumstances,” such as when the trade secret could be destroyed or hidden with advanced notice of the proceedings. Further, victims of wrongful seizure will be entitled to the same relief as available for an improper seizure under trademark law including a damage award, punitive damages for bad faith and attorney fees.
The DTSA also includes an important carve-out, immunizing from civil and criminal liability whistleblowers who disclose trade secrets “in confidence to a federal, state or local government official” or to an attorney for the purposes of reporting or investigating a suspect violation of the law or in a court filing under seal. Notably, in addition to providing whistleblowers with immunity, the DTSA also requires employers to provide notice of the immunity “in any contract or agreement” with an employee, consultant or independent contractor “that governs the use of a trade secret or other confidential information,” entered into or updated after the enactment date of the DTSA. An employer-plaintiff that fails to comply with the notice requirement will lose its right to recover exemplary damages and attorneys’ fees in any action against an employee to whom the notice was not provided.
The new law also aims to promote employee mobility by limiting the court’s authority to enjoin a former employee from accepting an offer of employment to those circumstances that involve actual or threatened misappropriations.
Navigating the new provisions of the DTSA requires advance planning. Businesses can prepare for the new law now by reviewing their confidentiality, hiring and consulting agreements and by systematically inventorying and safeguarding their confidential information that qualifies for trade secret protection.
If you have any questions regarding this Sidley Update, please contact the Sidley lawyer with whom you usually work, or
Martin B. Jackson
Rollin A. Ransom
M. Patricia Thayer
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