On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA) into law, creating a new federal cause of action for trade secret misappropriation. Previously, all trade secret claims had to be brought under state law (either under a state’s Uniform Trade Secrets Act or under common law). The new federal trade secret law has some notable features that will make it a useful tool for protecting innovation, especially for those industries where patent protection may be hard to obtain under the Supreme Court’s recent Mayo and Alice decisions.
- The DTSA creates original jurisdiction for trade secret claims in the U.S. district courts – trade secret lawsuits may now be filed in federal court even if both parties reside in the same state.
- Federal courts can grant injunctions to protect trade secrets, and can also award monetary damages based on (a) the actual loss to the trade secret owner, (b) the unjust enrichment of the misappropriator, and/or (c) a reasonable royalty for the misappropriation.
- In a case of willful and malicious misappropriation, the court may award exemplary damages up to twice the amount of compensatory damages. The court may also award attorneys’ fees for willful and malicious misappropriation or bad faith litigation.
- In “extraordinary circumstances,” a trade secret owner can seek an ex parte seizure of property if it is necessary to prevent the further propagation or dissemination of the trade secret. Among other requirements, a party seeking ex parte seizure needs to show that (a) traditional injunctive relief would be inadequate to protect the secret, (b) without the seizure, the trade secret owner will suffer immediate and irreparable injury, (c) the balance of harms favors the trade secret owner, and (d) the trade secret owner is likely to succeed on the merits of the lawsuit. If a court orders an ex parte seizure, the trade secret owner will be prohibited from publicizing the seizure.
- The DTSA cannot be used to “prevent a person from entering into an employment relationship.” – Congress rejected the “inevitable disclosure” theory of trade secret misappropriation. Any injunction under the DTSA that places conditions on a person’s employment “shall be based on evidence of threatened misappropriation and not merely on the information the person knows[.]” In addition, a DTSA injunction cannot conflict with state laws prohibiting restraints on employment.
- Trade secret theft is now one of the predicate offenses that can support a RICO claim.
- The DTSA includes a safe harbor provision for whistleblowers who disclose trade secrets to government officials or in sealed court filings “solely for the purpose of reporting or investigating a suspected violation of law.” Note: The DTSA requires employers to provide notice of the safe harbor provision “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information” that was entered into or updated after the DTSA became law. Failure to provide an employee with the required notice will prevent an employer from seeking either exemplary damages or attorneys’ fees against that employee. The DTSA includes contractors and consultants within its definition of “employee.”
- The DTSA does not preempt state trade secret laws. Those protections still exist and have not changed as a result of the new federal law (other than being subject to the safe harbor provision).