On May 11, President Obama signed into law the Defend Trade Secrets Act of 2016. Effective immediately, the DTSA creates the first private, federal cause of action for trade secret misappropriation in the United States. The DTSA also provides the statutory foundation for a standardized definition of "trade secret" and a more consistent body of federal jurisprudence on trade secret misappropriation. In addition, the DTSA prescribes unique remedies for federal misappropriation claims, and introduces special new requirements for employer/employee agreements involving confidentiality and trade secrets.
Prior to the enactment of the DTSA, trade secrets were primarily the subject of state law. Unlike patents, copyrights, and trademarks, trade secrets did not have a comprehensive federal statute governing their status and enforcement. While the majority of states have enacted some form of the Uniform Trade Secret Act promulgated by the Uniform Law Commission, there are differences among state jurisdictions regarding the definition and treatment of trade secrets. Likewise, plaintiffs asserting trade secret misappropriation were often limited to state court venues, absent a separate federal cause of action. As a result, trade secrets sometimes suffered from a lack of predictability in maintenance and enforcement compared to other IP assets.
The DTSA provides several new benefits to trade secret holders seeking to protect their proprietary interests. Foremost, the DTSA creates a new cause of action for private plaintiffs, who may now assert trade secret misappropriation under the auspices of its federal statutory definitions and guidelines. Plaintiffs suing through the DTSA can bring their claim directly to federal courts, which may be better equipped than state courts to handle complex, technical IP cases. Notably, the DTSA does not purport to preempt state trade secret law. So, trade secret owners are still free to assert separate, simultaneous causes of action under the relevant state statutes.
The DTSA also outlines several specific remedies for federal misappropriation. Most important, the DTSA creates an extraordinary new "ex parte seizure" remedy. This provision essentially allows federal courts to issue an order for federal law enforcement officials to immediately "seize property necessary to prevent the propagation or dissemination" of trade secrets, without notice to the defendant. In light of the severity of ex parte seizure, the DTSA imposes strict requirements on plaintiffs applying for this remedy that go far beyond the necessary showings for the typical preliminary injunction or TRO. In short, ex parte seizure is intended only for "extraordinary circumstances," such as imminent destruction of evidence, although it remains to be seen how courts will apply the stringent statutory prerequisites.
The DTSA also contains a "whistleblower" provision to protect employees who disclose a company's trade secrets to the government in connection with a suspected violation of law. Accordingly, the DTSA requires employers to provide a specific notice of the immunity in any agreement referencing confidentiality or trade secret protection. Companies that fail to observe this notice requirement may not recover attorneys' fees or exemplary damages in any DTSA suit against an employee who was not correctly informed. Consequently, employers must be very careful to include such notices in their new employee agreements, to avoid limiting their potential options for recovery.
The DTSA will have long-standing implications for all businesses owning trade secret assets, both in contracts and in the courtroom. By keeping track of new developments in DTSA jurisprudence, trade secret holders can improve the stability, security, and enforceability of these important proprietary rights.