Why it matters: With the enactment of the federal Defend Trade Secrets Act in 2016, the IP bar has seen an escalation in litigation centered on the alleged pilfering of trade secrets, especially in the tech industry. In addition, large jury awards in recent trade secret misappropriation trials have helped make this once-underused cause of action an important tool to protect trade secret information in the digital age.
Detailed discussion: The Defend Trade Secrets Act of 2016 was signed into law on May 11, 2016, and gives trade secret owners a federal cause of action and standard for injunctive relief and monetary damages for the misappropriation of trade secrets, while also providing employee protections. Prior to the DTSA, trade secret misappropriation was governed primarily by state-adopted variants of the Uniform Trade Secrets Act in 47 states and by common law in New York, Massachusetts and North Carolina, where the UTSA was never adopted. The DTSA provides federal jurisdiction for trade secret misappropriation claims but does not preempt these state laws. Rather, the DTSA provides an additional federal cause of action for trade secret misappropriation, with remedies including injunctive relief or reasonable royalties for ongoing infringement, ex parte seizure, increased monetary awards, and treble damages and attorneys’ fees for willful or malicious misappropriation. To balance the interests of employees, the DTSA expressly forbids injunctions preventing employment and protects individuals who divulge trade secrets while reporting violations of the law or in court filings made under seal. See our June 2016 newsletter under “Defend Trade Secrets Act of 2016: An Overview” for a comprehensive summary of the DTSA’s provisions.
In a July 28, 2017, article in Legaltech News, reporter Zach Warren explored what he calls the “surge” in federal IP trade secrets litigation since the DTSA was enacted: “These days, many of the big IP litigation battles involving companies like Facebook (Zenimax Media Inc., et al v. Oculus VR Inc., et al), Uber (Waymo LLC v. Uber Technologies Inc., et al) and Epic (Epic Sys. Corp. v. Tata Consultancy Servs. Ltd., et al) have nothing to do with patents, trademarks or copyrights at all. Instead, it’s all about the perhaps forgotten part of IP: trade secrets.”
While every company has “secret sauce” trade secrets that help differentiate it from its competitors, Warren said, in the tech industry especially “the risks of compromising those secrets are higher than ever before, in part because of the nature of computer code, but also the high level of access partners have to one another’s systems” via cloud services or otherwise. This problem is further amplified when the know-how is shared with third parties as part of system integration.
Notably, the specter of large jury awards in federal trade secrets cases makes filing trade secrets litigation in federal court more attractive. An example is the ZeniMax case (referenced above), where in February 2017 a Northern District of Texas jury ordered virtual reality developer Oculus VR (owned by Facebook) to pay $500 million to computing firm ZeniMax Media Inc. for trade secret infringement, among other IP infringement claims.
As a federal cause of action, the DTSA is proving to be an important tool in a company’s arsenal to protect trade secret information in the digital age. Given the uptick in trade secret litigation since the DTSA’s enactment, businesses should consider the DTSA at both the beginning and end of any relationship concerning confidential information.