On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (“DTSA”). The DTSA creates a federal cause of action for private entities to combat the misappropriation of trade secrets.
The DTSA has been heralded as one of the largest developments in intellectual property law in many years. By creating a federal private right of action, it brings both uniformity in the law and access to the federal courts for trade secret holders.
As its name implies, a trade secret is a form of intellectual property that by its nature is not disclosed. A trade secret, in a broad sense, is confidential information that provides one with a competitive advantage. It differs from patents and copyrights in that it does not have a certain term in which it expires, and unlike patents, trademarks or copyrights, it is not examined or reviewed by any governmental authority.
Trade secrets can range from formulas and algorithms to manufacturing processes and customer lists. The most famous example is the secret formula for Coca-Cola®. Another example of a trade secret is a search algorithm for online search engines such as one Google® may employ. Typically, something is considered a trade secret if it derives economic value from not being known to the public or to competitors, and reasonable measures are taken to protect its secrecy.
Prior to the DTSA, if a trade secret was misappropriated, the only way to enforce it was through an action in state court. Individual states have developed their own statutes to protect against the misappropriation of trade secrets. Most states have closely tracked the Uniform Trade Secrets Act (“UTSA”), but there are still significant differences in the laws of various states. While the DTSA has many similarities to the UTSA, such as the three year statute of limitations, the DTSA has a number of important distinctions.
The DTSA provides for the recovery of actual damages, restitution, injunctive relief, exemplary damages up to two times actual damages and attorney’s fees as remedies for the misappropriation of a trade secret. However, the most important remedy it provides, that was not available until the DTSA, is an ex parte order, in “extraordinary circumstances,” for the “seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action” (S.1890(2)(A)(i) 2016).
Another important procedural item that the DTSA includes, or more appropriately does not include, that varies from state trade secret laws and the UTSA is the absence of any requirement to identify the claimed trade secret as a prerequisite to the plaintiff’s right to discovery. Unlike patents, trademarks and copyrights, which can be readily identified, a trade secret would lose its protected status if it is identified. The application of this will be rather interesting as the case law surrounding this legislation develops. There is a possibility that it can be used unscrupulously by a plaintiff—they can vaguely allege a trade secret, take broad discovery and then narrow down their claims based on such responses. Only time will tell with regard to how the federal courts handle such matters.
The DTSA also brings up employment issues in that it provides immunity to whistleblowers who disclose trade secrets to government officials, in confidence, “for the purpose of reporting or investigating a suspected violation of law.” 18 U.S.C. § 1833(b)(1)(A)(ii). Employers must now give notice of that immunity “in any contract or agreement with an employee that governs the use of a trade secret.” Otherwise, if that notice is not provided, an employer cannot recover from the employee punitive damages or attorney’s fees that may otherwise have be available to it under the DTSA.
By opening the doors of the federal courts and providing new remedies to prevent disclosure of trade secrets, the DTSA will be a valuable tool for businesses that own and seek to protect valuable trade secrets. Companies should evaluate their policies and enforcement options in light of it