On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (DTSA). The law was previously passed unanimously in the Senate and ratified by the House of Representatives. The long-proposed legislation will federalize trade secrets law, allowing companies for the first time to file civil lawsuits in federal courts for theft of trade secrets under the federal Economic Espionage Act. Prior to passage of the law, the statute provided only for criminal cases lodged by prosecutors; private civil cases were required to be filed under state law.
Heretofore, trade secret protection was governed by individual state law; notwithstanding general adoption of the Uniform Trade Secrets Act (UTSA), there remain significant state-to-state differences in application of the law. One of the primary goals of the DTSA is to further harmonize trade secrets law through a single federal statute, allowing for the development of more predictable, nationwide case law. It also provides easier access to federal courts, which are better equipped to handle cross-state and international cases, as well as complex technological issues.
Notably, the DTSA does not preempt the state laws already on the books. Unlike copyrights and patents, which are explicitly mentioned in the U.S. Constitution, federal trade secret law draws its authority from the Commerce Clause; like trademark law's federal Lanham Act, the DTSA will co-exist with state-level trade secrets law.
Below are several important takeaways concerning the DTSA:
- The purpose of the DTSA is to bring the protections for trade secrets on par with those afforded to patents, copyrights and trademarks. Again, trade secrets heretofore were exclusively the domain of state law. Variations in individual state trade secrets legislation could lead to unpredictable or inconsistent results based solely on geographic location. The DTSA solves this problem, as well as removing trade secrets litigation from state courts.
- The DTSA does not replace state trade secrets laws. The law includes a provision expressly stating that it does not preempt existing state-level trade secrets laws. Because federal regulation of trade secrets derives from the Commerce Clause to the U.S. Constitution, the federal government’s authority is limited to interstate commerce; trade secrets cases involving only intrastate commerce are still solely the domain of state law. This is different from patents and copyrights, where the power of the federal government is expressly rooted in the Constitution. Thus, like the trademark law and the federal Lanham Act, trade secrets law and the DTSA will co-exist with existing state law.
- The DTSA includes an ex parte seizure provision. This allows plaintiffs to ask courts to order law enforcement officials to seize any property "necessary to prevent the propagation or dissemination of the trade secret" — all without a hearing or answer from the accused party. Similar remedies are available under the Copyright Act and the Lanham Act (trademarks). And similar provisions for trade secrets may prevent fast-paced modern trade secrets theft. Critics have warned that the orders could be used abusively, particularly against small companies and former employees. To meet these concerns, the version of the DTSA signed into law says that such orders are only to be used in "extraordinary circumstances," and lays out clear set of requirements for those circumstances. The law also requires that parties show "with particularity" what property is to be seized, as well as provide proof that the target of the seizure order has "actual possession" the trade secret or the property. In addition, the ex parte provision includes a subsection allowing targets of such orders to seek damages if they feel the provision has been abused or they were unfairly targeted.
- The DTSA likely will lead to more trade secrets legislation, due in part to growing doubts in today's patent system. Several recent developments have weakened the strength of patent protection, e.g., the America Invents Act and its tougher patent review proceedings, as well as Supreme Court rulings like Alice Corp. v. CLS Bank, which have made it far easier to invalidate certain types of patents. As a result, it has become much more difficult to enforce patents at the same time that the value of intellectual property continues to increase. As a result, the DTSA is likely to mean that more and more companies will pursue action on the trade secrets front, rather than the patent front.
- Although the DTSA had widespread support—including from the Obama administration—there were a few significant dissenting voices, including (but not limited to) those concerned about the effect of the ex parte seizure provision. A group of law professors opposed the legislation, arguing that the DTSA fails to actually deal with the largest threat to American trade secrets — cybersecurity — while creating uncertainty in a current state-based system that (per the professors) is working adequately.