A company’s trade secrets are its lifeblood, but they are valuable only if they remain secret. Faced with a growing rise in theft from foreign hackers, nation states, and rogue employees, trade secret owners now have a new legal weapon to help protect their trade secrets.
The federal Defend Trade Secrets Act of 2016 (DTSA) amends the federal criminal provisions of the Economic Espionage Act to create a private civil cause of action for trade secret misappropriation.1
Signed into law in May 2016, the DTSA establishes remedies that include injunctive relief, compensatory damages, and attorney’s fees, and it sets a three-year statute of limitations from the date of discovery of the misappropriation.2 The DTSA does not preempt state law, which means that trade secret owners may continue to pursue remedies in state courts (or seek state court remedies in federal court) while taking advantage of the provisions in the DTSA. Under the DTSA, a trade secret owner may file a civil action in a U.S. District Court seeking relief for trade secret misappropriation related to a product or service in interstate or foreign commerce.3
According to the DTSA, a “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing provided that two conditions are met:
- The owner thereof has taken reasonable measures to keep such information secret; and
- The information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.4
Liability under DTSA
There are two ways a person or company may be found liable in a civil action for misappropriation of trade secrets under the DTSA: (1) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means or (2) disclosure or use of a trade secret of another without express or implied consent. When the alleged misappropriation is based on disclosure or use, the person who disclosed the information must have:
- Used improper means to acquire knowledge of the trade secret;
- At the time of the disclosure or use, knew or had reason to know that the trade secret was:
- Derived from or through a person who had used improper means to acquire the trade secret;
- Acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or
- Derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or
- Before a material change of the position of the person, knew or had reason to know that:
- The trade secret was a trade secret; and
- Knowledge of the trade secret had been acquired by accident or mistake.5
The term “improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means, but does not include reverse engineering, independent derivation, or any other lawful means of acquisition.6
A notable provision allows a trade secret owner to apply for, and a court to grant, in extraordinary circumstances, an ex parte seizure order (i.e., seizure without prior notice to the person against whom seizure is ordered).7 In order to grant a seizure order, a court must make specific findings, including, among other things: (1) a temporary restraining order or another form of equitable relief is inadequate; (2) an immediate and irreparable injury will occur if seizure is not ordered; (3) the person against whom seizure would be ordered has actual possession of the trade secret and any property to be seized; and (4) the property would be destroyed, moved, hidden, or otherwise made inaccessible to the court.
To curb abuse, the DTSA also allows those who believe they have been subjected to wrongful or excessive seizure to pursue a cause of action for damages, including lost profits, costs of materials, loss of goodwill, and punitive damages if the seizure was sought in bad faith.
The DTSA also provides immunity from civil and criminal liability for an individual who discloses a trade secret: (1) to a government official or attorney in confidence to report or investigate a violation of law, or (2) in a legal complaint or filing under seal.8
Employers are required to provide notice of the DTSA immunity in any contract or agreement with an employee that governs the use of a trade secret or other confidential information, which notice requirement may be satisfied by providing a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law. Failure to comply with the notice requirement will prevent employers from being awarded certain exemplary damages or attorney fees. The notice requirements apply to contracts and agreements entered into or updated after the effective date of the DTSA (May 11, 2016).
In sum, the DTSA allows civil lawsuits in federal court giving trade secret owners a new and powerful legal weapon in the fight against trade secret theft. The DTSA is a substantive change that will have major consequences for intellectual property law, federal courts, and the economy.