On April 27, 2016, by a vote of 410 to 2, the House passed the Defend Trade Secrets Act of 2016 (the “Act”). The Act passed the Senate earlier this month and is now headed to the President for his anticipated signature. If signed, the Act will amend the Economic Espionage Act of 1996 and will grant access to federal courts to owners of trade secrets “aggrieved by misappropriation of a trade secret that is related to a product or service used in, or intended for use in interstate or foreign commerce.” [S.1890 Sec. 2(a)(1)].
The Act tracks certain of the definitions and certain of the remedies (actual damages, unjust enrichment, reasonable royalties) set forth in the Uniform Trade Secrets Act (“UTSA”), which has been adopted, in one form or another, in 48 states. Nevertheless, the Act stands alone and creates a new civil cause of action providing access to the federal court system even in the absence of diversity. At the same time, parallel state law trade secrets claims asserted both under the UTSA and at common law will continue to exist; the Act does not expressly preempt such state law causes of action. The Act does, however, expand upon the protection offered by the UTSA by providing for ex parte seizure, under certain circumstances, of the media upon which alleged misappropriated trade secrets are held.
The ex parte civil seizure remedy is the most controversial aspect of the Act. Entitlement to the civil seizure remedy, before adjudication on the merits, and executed by federal law enforcement officials, will require an applicant to show: (1) traditional injunctive relief would be insufficient and ineffective because the target party would evade, avoid or not comply with a court order; (2) immediate and irreparable injury; (3) likely success on the merits; (4) the anticipated harm to the applicant in denying the seizure application out-weighs the legitimate interest of the party against whom the remedy is sought (and third parties whom may also be effected by the seizure); (5) a particularized description of the media to be seized; and, (6) a showing that the party seeking the order has not sought to publicize the requested seizure. As expected, the Act also requires the posting of security against damages caused by a wrongful seizure and creates an independent cause of action for damages arising from a wrongful seizure that may exceed the value of the security posted.
As the Act is limited to addressing misappropriation related to a product or service used or intended for use in interstate commerce, and the lack of expressed preemption of state law trade secrets claims, it remains to be seen whether the Act will bring about the desired uniformity in the protection of trade secrets intended by its sponsors, or merely add a duplicative cause of action with divergent remedies and evidentiary requirements from the various state enactments of the UTSA which will continue as viable cause of action.
Finally, in light of the Supreme Court’s opinion in Alice Corp. v. CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014), patent claims as to a number of business methods, business processes, and computer-implemented inventions are now regularly refused or challenged as not constituting patent-eligible subject matter. As a result, many companies are necessarily turning to trade secrets law to protect their competitively valuable assets. If the Act is signed into law by the President, as anticipated, it will likely hasten this shift toward trade secrets protection as a viable option to replace the patent protection lost as a result of theAlice decision.