On May 11, 2016, President Obama signed the Defend Trade Secrets Act (“DTSA”) into law, creating a private federal civil cause of action for trade secret misappropriation. This landmark legislation, a product of bipartisan backing and significant support from the business community, will affect businesses and individuals operating in almost every economic sector across the country. The DTSA will potentially be at issue any time an employee with access to confidential, proprietary, and trade secret information moves on to a competitor or launches a startup that competes with the former employer. This will be true so long as the product or service that the trade secret relates to is either used in or intended for use in interstate or foreign commerce. Under present commerce clause jurisprudence, the vast majority of businesses providing products and services in the United States will be affected by this new law.
The DTSA will provide, for the first time, a codified federal civil remedy for misappropriation of trade secrets. Although most states have adopted some version of the Uniform Trade Secrets Act (“UTSA”), there remains significant variation between the states in their application of the UTSA and litigants face significantly different statutory frameworks depending upon which state holds jurisdiction over the dispute. In addition, prior to this new law, litigants were limited to pursuing their claims for misappropriation of trade secrets in state courts, unless federal diversity jurisdiction applied to the dispute. The DTSA changes that dynamic, providing original federal subject matter jurisdiction over trade secret disputes.
Unlike, for example, the California Uniform Trade Secrets Act (“CUTSA”), the DTSA does not preempt other causes of action based upon the misappropriation of trade secrets. For example, the CUTSA preempts common law tort claims if they are based upon the same facts as the trade secrets claim. Often, this means businesses face difficulty pursuing claims for fraud, economic interference, and unfair competition in California state court. Nor does the DTSA preempt state trade secret laws, such as the CUTSA. Like the UTSA and many of its state adoptive statutes, however, the DTSA provides for injunctive relief, compensatory damages, exemplary damages, and the recovery of attorneys’ fees if the misappropriation is shown to be malicious or willful (or if the claim for misappropriation is made in bad faith). The DTSA has a three year statute of limitations.
The DTSA also offers a powerful new tool to plaintiffs that believe their trade secrets have been stolen. Upon demonstrating to the district court that a temporary restraining order or other equitable relief would be insufficient to prevent the dissemination of the trade secrets and meeting a variety of other elements, a plaintiff may obtain an ex parte order from the court to seize the trade secrets – which may include seizure of defendants’ property such as hard drives, mobile phones and email accounts where the plaintiff’s trade secrets are located.
Companies, and in particular companies operating across state lines, should update their employment agreements and confidentiality policies to reflect the passage of the DTSA in order to qualify for all of the remedies provided for in the new law. Those contemplating a lawsuit or the defense of a lawsuit alleging misappropriation of trade secrets should consider the impact of the DTSA on their case.