On Wednesday, President Obama signed into law the Defend Trade Secrets Act of 2016, a reaction to escalating concerns about foreign theft of U.S. trade secrets. While most states have their own trade secrets statutes dealing with misappropriation, the DTSA provides a new mechanism for suit in federal court and to seek court seizure of stolen trade secrets, including seizure of computers, cell phones, and the like. A business with misappropriated trade secrets now faces risk, at the federal level, of meaningful disruption and pain for misappropriation.
The DTSA standard for civil seizure is higher than state trade secret statutes require for an injunction because it is a more extreme. To order seizure, a court has to find from specific facts that it “clearly appears” that:
- A standard injunction or other equitable remedy—remedies that are already available—are inadequate;
- An “immediate and irreparable injury” will occur without a seizure;
- Without a seizure, the applicant will experience harm greater than the party subject to seizure;
- The applicant is “likely to succeed” in showing that a trade secret was actually misappropriated or that the other party conspired to misappropriate a trade secret;
- The party subject to seizure has actual possession of the trade secret and property to be seized;
- The applicant’s petition reasonably identifies the property to be seized and its location, to the extent reasonable;
- The party subject to seizure would hide or destroy the property subject to seizure if provided prior notice by applicant; and
- The applicant has not publicized the requested seizure.
The DTSA also grants a private right of action to the party subject to seizure in the event of a wrongful seizure, and the applicant is required to post security upfront “for the payment of the damages that any person may be entitled to recover as a result of a wrongful or excessive seizure or wrongful or excessive attempted seizure.”
Like most state statutes on the subject, the DTSA also provides for an injunction, damages (including exemplary damages of up to twice the actual damage amount in the event of a willful and malicious misappropriation), and attorneys’ fees for bad faith or willful and malicious misconduct. The DTSA, however, also includes an important caveat: an employer must provide notice to its employees that they are immune from liability for disclosing a trade secret to the government or in a court filing, in confidence, for the purpose of reporting or investigating a suspected violation of law. If an employer fails to provide that notice, it will not be entitled to exemplary damages or attorneys’ fees under the DTSA in the event of misappropriation.
The DTSA provides an aggrieved party a much more severe remedy against a party who misappropriated its trade secrets and gives federal courts subject matter jurisdiction over claims that plaintiffs are otherwise generally forced to file in state court. But with greater recourse comes greater responsibility. A plaintiff must have the ability to make a more rigorous showing—and to back it up, or face liability for wrongful seizure.