On April 25, we issued an alert discussing the Defend Trade Secrets Act’s progress in Congress and predicting that it would soon be passed by the House of Representatives and be signed into law by President Obama. In fact, the House passed the DTSA by a vote of 410-2 on April 27, 2016, and today, May 11, President Obama signed it into law. The DTSA is codified at 18 U.S.C. 1836(b).
Proponents of the DTSA have argued that a federal cause of action for theft of trade secrets is necessary to create a uniform body of case law and to cure perceived procedural obstacles to the protection of trade secrets caused by the fact that, until now, trade secret misappropriation cases have been governed by state law. While 48 states (and the District of Columbia) have enacted in some form the Uniform Trade Secrets Act, there are material differences between different jurisdictions’ versions of the UTSA -- including differences in the definitions of key terms such as the “improper means” of acquiring trade secret information giving rise to liability for misappropriation. The creation of a federal civil cause of action for trade secret misappropriation should, at least in theory, minimize the practical importance of the existing lack of strict uniformity in the law governing this important area of intellectual property protection.
Now that the DTSA is the law of the land, trade secret owners should be aware of the following key provisions:
- The DTSA went into effect as of the date of enactment (May 11), and applies to any act of misappropriation occurring on or after that date.
- An owner of a trade secret that is misappropriated may bring a civil action in federal court “if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”
- The statute of limitations for federal civil misappropriation actions is three years “after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered. For purposes of this subsection, a continuing misappropriation constitutes a single claim of misappropriation.”
- The DTSA defines a “trade secret” as “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.”
- The definition of “misappropriation” closely tracks the language of the UTSA, but does not include as “improper means” of acquisition “reverse engineering, independent derivation, or any other lawful means of acquisition.”
- The DTSA contains a mechanism for ex parte ordered by courts and enforced by Federal, State, and/or local law enforcement as a preventive measure (akin to a temporary restraining order, and subject to many of the existing requirements for obtaining injunctive relief under Fed. R. Civ. P. 65).
- Remedies for trade secret misappropriation include injunctive relief to protect against actual or threatened misappropriation; the imposition of a reasonable royalty if injunctive relief would be inequitable; damages for actual losses caused by the misappropriation; and damages for unjust enrichment.
- The DTSA attempts to strike a balance between employee mobility – a fact of life in today’s business world – and the protection of former employers’ intellectual property.To that end, the DTSA does not recognize the “inevitable disclosure doctrine” and requires that injunctive relief that would prevent a person’s employment (or place conditions on a person’s employment) must be “based on evidence of threatened misappropriation and not merely on the information the person knows.”Moreover, the DTSA provides that any injunction preventing or limiting employment cannot “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”
- In a provision relevant to whistleblower actions, the DTSA grants immunity from liability for confidential disclosure of a trade secret to state and federal government entities when reporting a suspected violation of law or in a court filing made under seal. Employers should be aware that the DTSA requires that “[a]n employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”Accordingly, NDA’s and other employment agreements should be modified to accommodate this important change in the law.
The DTSA does not preempt state trade secrets law, and time will tell whether the new federal law will peacefully co-exist with state law in situations where conflicts or ambiguities exist. For example, how will federal courts apply the preemption clauses found in many states’ versions of the UTSA which provide that those Acts displace “conflicting tort, restitutionary, and other law … providing civil remedies” for trade secret misappropriation? Because the DTSA is silent on the pleading requirements in federal trade secret cases and the specificity with which trade secrets must be identified before discovery is allowed to proceed, how will federal courts in jurisdictions (such as California) where state law contains explicit requirements incorporate them in cases brought pursuant to the DTSA? And, how effective will the DTSA be at fighting economic espionage?
These and other questions will keep courts and lawyers busy. In light of the uncertain patent law landscape created by developments making it easier to invalidate certain types of patents (such as the review proceedings established by the America Invents Act and cases such as Alice Corp. v. CLS Bank), companies are increasingly looking to trade secret protection for their intellectual property. Accordingly, the DTSA is likely to be tested early, and often.