On May 11, 2016, President Obama signed the Defend Trade Secrets Act which had been overwhelmingly passed by the U.S. House of Representatives on April 27, 2016, after having previously been passed by the Senate. The Act creates a federal civil cause of action for trade secret theft.
The Defend Trade Secrets Act will allow companies to file civil lawsuits for trade secret theft under the Federal Economic Espionage Act. Previously federal trade secret law provided only for criminal prosecution under federal law, and private litigants had to rely exclusively upon state law for trade secret protection. Although many states have adopted variations of the Uniform Trade Secrets Act, the specifics of state law vary and these differences have led to confusion and uncertainty for companies seeking trade secret protection. The Defend Trade Secrets Act is aimed at eliminating most of this uncertainty and creating a uniform legal standard.
The Defend Trade Secrets Act supplements existing state trade secret law; it does not replace or preempt state law, so it is likely that in many cases a litigant will have remedies available under both state and federal law. We anticipate, however, that the existence of a federal cause of action will mean that federal, rather than state courts, will become the primary forum for trade secret disputes.
In addition to granting federal courts automatic jurisdiction over civil lawsuits involving trade secret claims, the Defend Trade Secrets Act differs from most existing state laws by providing a mechanism for allowing ex parte seizures by federal law enforcement. Plaintiffs may ask courts to order that law enforcement personnel seize property “necessary to prevent the propagation or dissemination of the trade secret” without a hearing or an answer from the accused entity. The Act limits these seizures to “extraordinary circumstances” where all the elements that would traditionally entitle a plaintiff to an injunction such as irreparable harm and a strong likelihood of success on the merits are present and the plaintiff also shows that:
- an injunction or other form of equitable relief would be inadequate because the party to which the order would be issued would evade, avoid, or not comply with any such order;
- The entity against whom the seizure is sought has actual possession of the trade secret and any property to be seized;
- The application shows, with particularity what property is to be seized and the location where the property is to be seized from;
- The entity or persons acting in concert with the entity against whom seizure would be ordered, would destroy, move, hide, or otherwise make the matter inaccessible to the court if the applicant were to proceed on notice; and
- The applicant has not publicized the requested seizure.
Companies should proceed with caution when seeking ex parte seizures because the Act allows the entity that is subject to the seizure to seek damages if this provision has been abused or they were unfairly targeted. Damages for these improper ex parte seizures include those provided under Section 34(d)(11) of the Trademark Act of 1946 and include lost profits, cost of materials, loss of good will, punitive damages (where the seizure is sought in bad faith), and reasonable attorney’s fees. Additionally, while state laws differ on whether attorney’s fees are available for regular, non-seizure trade secret cases, the Defend Trade Secrets Act explicitly provides for an award of reasonable attorney’s fees in three circumstances: (1) where the claim of misappropriation is made in bad faith; (2) a motion to terminate an injunction is made or opposed in bad faith; or (3) the trade secret was willfully and maliciously misappropriated.
This new federal law recognizes that modern trade secret disputes usually lack discrete geographic boundaries. We expect that federal courts will become the primary, if not exclusive forum, for litigating most trade secret disputes. The hope is that this Act and its ensuing cases will provide more certainty for all parties involved in trade secret cases going forward.