Congress finally has, after long effort and debate, enacted a federal trade secret law. On April 27, 2016, the House of Representatives passed the Defend Trade Secrets Act, a bill that already had been approved by the U.S. Senate. President Obama is expected to sign it into law.
The Act, formally an amendment to the Economic Espionage Act (18 U.S.C. §§ 1831 et seq.), establishes a new private cause of action under federal law for trade secret misappropriation, affording federal protection to trade secrets alongside copyrights, patents, and trademarks. The Act provides federal court jurisdiction for trade secret disputes and arms businesses with previously unavailable enforcement tools to help them protect their trade secret assets.
Currently, civil claims for trade secret misappropriation arise solely under state law. Although nearly every state has adopted some version of the Uniform Trade Secrets Act (New York and Massachusetts being the only exceptions), trade secret law nonetheless varies significantly from state to state. The new federal statute is intended to establish “a more uniform, reliable, and predictable way” for businesses to protect trade secrets.
The Act’s definitions of “trade secret” and “misappropriation” are virtually identical to the definitions found in the UTSA. Moreover, the damages provisions in the Act (actual damages, plus, in cases of willful and malicious misappropriation, exemplary damages up to twice the amount of actual damages and attorneys’ fees) are the same as those provided under the UTSA. Thus, the Act is not significantly different than the substantive law of states where the UTSA has been enacted. One key difference may be the statute of limitations, which is three years under the Act but ranges from two years to five years under state law.
The Act likely will result in fewer trade secret claims being litigated in state courts because it provides a basis for original federal jurisdiction. And, with a single uniform statute, federal court litigation under the Act may lead to more predictable outcomes than litigation under state laws. At the same time, the Act expressly does not preempt state law, so litigants may still rely on state law in situations where it may offer advantages over the Act.
Perhaps the Act’s most significant expansion of current law is its prescribed procedure for the ex parte seizure of property – “in extraordinary circumstances” – when necessary to prevent propagation or dissemination of a stolen trade secret. This procedure may be used in cases where a temporary restraining order or preliminary injunction is inadequate, but it is sure to prompt litigation about its validity. Moreover, the ex parte seizure procedure could prove to be a double-edged sword for businesses because, while a potent weapon in the litigation arsenal, it could be used against them just the same and result in seizure of their property without notice or opportunity to be heard. It remains to be seen how frequently the procedure will be utilized and how effective it may be.
Long a major objective of technology-driven businesses, especially those facing sophisticated competition, the new federal trade secret statute will add to the arsenal of legal weapons available to protect an enterprise’s intellectual property from theft and infringement.