President Obama signed the “Defend Trade Secrets Act of 2016” (DTSA) on Wednesday last week, creating a new federal action to protect trade secrets. While trade secret protection has existed for many years under state laws, a perceived weakness has existed with respect to the consistency and timely enforcement of trade secret laws from state to state, particularly when applied to interstate and international commerce. The DTSA is intended to address those weakness.
Notably, by its own terms, the DTSA does not replace state law. Moreover, the DTSA is modelled on the longstanding Uniform Trade Secrets Act that has been adopted (with variations) by most states. Therefore, trade secret owners already familiar with the basic tenets of state trade secret law will recognize the basic tenets in the DTSA. The key significance of the DTSA, consistent with the perception that helped drive its passage, appears to be the added options it gives trade secret owners in terms of (1) access to federal courts applying a truly uniform trade secret law and (2) an ex parte seizure mechanism to stop trade secret theft that is in process but not complete. The DTSA also provides detailed guidance respecting technology related considerations applicable to ex parte seizure orders as well as the law enforcement authorities authorized to carry them out.
Another DTSA term potentially receiving less publicity is new notice requirement related to employee contracts (including contractor and consultant contracts) entered into after enactment of the DTSA. Specifically, employee contracts that address the use of trade secrets or other confidential information must include notice of employee immunity for certain disclosures of trade secrets made to the government or courts. Non-compliance results in the loss of the right to recover attorney fees as well as certain damages against an employee for trade secret disclosure.
While the DTSA has many additional details, the bottom line for trade secret owners appears to be the new options it provides in the continuing battle to prevent and deter trade secret theft. However, to effectively apply the new options under the DTSA, trade secret owners should have a response plan in place before facing a trade secret emergency. Important considerations such as the procedural advantages of state court versus federal court, the practical steps to effectively coordinate and implement ex parte seizure orders, and the existence of adequate notice in contracts addressing the use of trade secrets all may play a role in the ultimate success or failure of a trade secret action. Absent advance planning, even with the new DTSA, the opportunity to stop a trade secret theft, and obtain an award for all potential damages, can be lost.