Relief may soon be coming for trade secrets plaintiffs longing for federal court. Last year we covered the introduction of the Defend Trade Secrets Act (DTSA), compared it to the Uniform Trade Secrets Act (UTSA), and questioned whether federal court under this new law would be a preferable venue to plaintiffs. Since then, the bill, like the many that came before it, died in Congress.
Like the phoenix it is, however, the bill has gained new life as the Defend Trade Secrets Act of 2016, S. 1890. Introduced last July, the Bill appears to pick up right where its predecessor left off. There are many similarities between the bills, including similar definitions of trade secrets and misappropriation, similar remedies, and, at least as initially written, a similarly generous five year statute of limitations period. One key difference is found in punitive damages. While the 2014 version of the bill authorized punitive damages up to three times the actual damages, the 2015 version aligns with the UTSA permitting only up to twice the actual damages.
Last month the Committee on the Judiciary published its Committee Report on the bill. With a few amendments, the Committee recommended passing the bill. The amendments, and the Committee Report more broadly, demonstrate a desire to keep the proposed federal trade secrets law as closely aligned with the established UTSA as possible. The Committee Report appears to have worked. The Senate passed the bill 87-0 yesterday. With such overwhelming support in the Senate, the pressure is now on the House.
Whether this is good or bad news for trade secrets plaintiffs will depend on which aspects of the originally proposed bill excites them.
First, the Committee’s amendment to the bill dials the statute of limitations period back to three years from the originally proposed five. This change is not alarming as it aligns the DTSA with the UTSA. Assuming the law passes, plaintiffs will have the same period with which to file either a state or federal trade secrets claim.
Second, while leaving intact the ability to obtain an ex parte seizure of property to prevent the dissemination of a trade secret, the Committee’s amendment specifies that ex parte seizures are only permitted in extraordinary circumstances. Ex parte seizures, as we previously discussed with respect to the 2014 bill, are one of the most distinguishing features of the DTSA and a feature that could be particularly attractive to plaintiffs who wish to ensure that their trade secrets are kept as secure as possible pending resolution of a matter. Defendants, however, will be happy to hear the Committee’s amendment makes clear ex parte seizures could not and should not be used to secure just any trade secret and instead, a plaintiff must show extraordinary circumstances. Further, a seizure order should only be granted when a temporary restraining order would be inadequate and after balancing the interests of all parties.
Finally, the Committee’s amendment adds protection for whistleblowers and confidential disclosures of trade secrets within a lawsuit, including anti-retaliation proceedings. Under the DTSA, employers would be required to give notice to their employees about this immunity.
As currently written, the DTSA closely aligns with the UTSA, the governing trade secrets law in forty-eight of the fifty states. With several of the more plaintiff-friendly aspects of the original draft (i.e. increased punitive damage cap, extended statute of limitations) scaled back, the substantive impact of the DTSA remains unclear. How much of an effect a federal law in this area will have remains to be seen, but it looks like it may finally be on the horizon. The ball is now in the House’s court. Reports suggest that the House is more concerned with a patent bill, but perhaps the unanimous Senate report will get DTSA more attention.