May 12, 2016 | Trade Secrets and Transitions

President Signs the Defend Trade Secrets Act of 2016

As we reported over the last few weeks, the Defend Trade Secrets Act of 2016 (DTSA) was close to becoming the first civil, federal law designed to provide a remedy for the theft of trade secrets. Yesterday, as expected, President Obama signed the DTSA into law. What does this mean for companies with valuable trade secrets to protect, and how will the DTSA impact trade secret law?

The DTSA creates a private, civil cause of action that allows the owner of a stolen trade secret to bring suit in federal court, as long as the trade secret is related to a product or service used or intended to be used in interstate or foreign commerce. President Obama and Congress have emphasized the international aspect of the DTSA, speaking about the United States’ place in the global economy and foreign threats to American businesses from the theft of trade secrets. But given that the DTSA may be used whenever the trade secret at issue relates to a product or service in interstate commerce, this new law may end up being used most often by Americans suing other Americans for misappropriation that occurred in the United States.
The DTSA provides an easy way for most trade secret owners to get into federal court. But this does not necessarily mean that trade secret litigation in federal court will drastically increase. Some trade secret owners already sue in federal court if diversity or supplemental jurisdiction exists. As for those trade secret owners who would be limited to state court if not for the DTSA, it’s hard to predict whether they will now bring their actions in federal court or choose to stay in state court.

On a related note, it also remains to be seen how extensively trade secret owners will use the DTSA. The DTSA explicitly states that it does not preempt state law, so it will exist alongside states’ current trade secret laws. Trade secret owners may prefer the predictability of state trade secret law, which has been interpreted and litigated for many years, rather than take a chance and test out the DTSA. Or they may choose to bring state and federal trade secret claims simultaneously.

However, one aspect of the DTSA that differs from state trade secret laws, and that may entice trade secret owners to bring their new actions in federal court under the DTSA, is its provision for seizure of the trade secret material without notice to the defendant. Trade secret owners who can establish, among other things, that extraordinary circumstances exist, other remedies (such as an injunction) would be inadequate, and immediate and irreparable injury will otherwise occur can obtain an order providing for the seizure of property necessary to prevent the dissemination of the misappropriated trade secret. In an effort to prevent abuse, though, a trade secret owner who obtains a seizure order will not be allowed to access or copy the seized trade secret material (which will remain in the custody of the court) until both parties have been heard in court.

The civil seizure provision under the Lanham Act has been used effectively to seize counterfeit goods and is a powerful remedy for trademark owners who are fighting the proliferation of counterfeits. The DTSA’s seizure provision has similarities to this provision of the Lanham Act and could be an important tool for trade secret owners who meet the stringent requirements for a civil seizure.

This seizure provision – more than access to federal court or substantive federal law protecting trade secrets – could be the most significant feature of the DTSA.