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On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”), long-proposed legislation that establishes a federal trade secrets law.  Now companies seeking civil remedies for misappropriation of their trade secrets can bring their claim in federal court and obtain other remedies such as seizure orders and injunctive relief.

Prior to the DTSA, plaintiffs had to resort to state courts to bring their trade secret claims, which often led to inconsistent results as states have their own interpretations of key issues including damages, what constitutes “reasonable measures” to secure secrecy, and even the statute of limitations.  The DTSA attempts to harmonize state laws by creating a single framework for trade secret misappropriation lawsuits.  Its passage puts trade secrets on the same level as patents, copyrights, and trademarks and will likely lead to more uniformity and predictability in applicable standards.

In addition to creating a clear path to enforce trade secret rights in federal court, the legislation details the procedures for obtaining civil seizure orders, injunctive relief, and damages for trade secret misappropriation and unjust enrichment where the trade secret “is related to a product or service used in, or intended for use in, interstate or foreign commerce.”

As most companies maintaining trade secrets know, owners must remain diligent in ensuring that their trade secret is not improperly disseminated.   Under the new legislation, seizure orders will be available under extraordinary circumstances to prevent the dissemination of the trade secret.  In particular, a seizure order would require a showing of irreparable injury and likely success in proving (1) that the information is a trade secret, and (2) that the person named misappropriated the information or conspired to do so “by improper means.”  The statute defines “improper means” to include theft and misrepresentation, but the definition expressly excludes reverse engineering, independent derivation, or other lawful means of acquisition.  The new statute also permits injunctive relief for actual or threatened misappropriation, which will allow companies to be proactive in safeguarding their trade secrets if there is a threat.

The statute also provides for the remedy of actual and unjust enrichment damages.  However, in lieu of other damages, a company can elect to obtain a reasonable royalty for the unauthorized disclosure or use of the trade secret.  In the case of willful violations, it permits exemplary damages in an amount up to two times the amount of damages otherwise awarded.

On the flip side, for any company or anyone wrongfully accused of misappropriation, the statute permits attorneys’ fees for bad faith claims of misappropriation, and includes a provision that allows a company or person damaged by a wrongful or excessive seizure to have a cause of action against the applicant.

Finally, the statute includes a new whistleblower provision of which companies must advise their employees.  The statute grants immunity to whistleblowers who disclose a trade secret to a government official or an attorney solely for the purpose of reporting or investigating a suspected violation of the law.  Companies now need to provide the notice of immunity to any employee or independent contractor in a contract or agreement that governs the use of trade secret or other confidential information.  Its failure to do so will constitute a waiver of some of the statute’s benefits, including exemplary damages and attorneys’ fees otherwise available to the company.

The recent passage of the DTSA provides owners of trade secrets with further remedies against misappropriation.  In addition to being able to bring their claim in federal court, there are other remedies such as seizure orders, injunctive relief, and attorneys’ fees for bad faith claims.  However, employers should ensure compliance with the notice requirements in the whistle blower provisions of the DTSA so they do not forfeit some of the statute’s benefits.

In an idea submission case, where Plaintiff alleged that Defendants fraudulently expressed interest in developing Plaintiff’s science fiction story only to use parts of that story in the hit 2009 film “Avatar,” the California Court of Appeal recently affirmed summary judgment in favor of Defendants, dismissing all claims.  In particular, the court found that there was no substantial similarity between the projects and that Plaintiff was unable to prove that Defendants used any of Plaintiff’s ideas in the film.

Between 1996 and 1998, the plaintiff, Eric Ryder, wrote a science fiction short story entitled “KRZ 2068” and began to distribute the story along with a proposal containing language that required the recipient to agree that the material would remain confidential, that the recipient could not copy any “KRZ” material “in whole or in part,” and that it would not be used for any purpose other than that for which it was intended.  After the parties met six times in 2001, the production company passed on Plaintiff’s story, and Plaintiff was unable to sell the story to other production companies.  In 2009, the movie “Avatar” was released.  Plaintiff filed suit in 2011, claiming that Defendants used his ideas in the movie.

In the suit, Plaintiff alleged claims for (1) breach of fiduciary duty; (2) breach of express contract; (3) breach of implied contract; (4) promissory fraud; (5) fraud and deceit; and (6) negligent misrepresentation.   In their motion for summary judgment, Defendants claimed to have conceived of “Avatar” before Plaintiff, that Plaintiff could not prove that the projects were substantially similar, and that the alleged joint venture and contractual relationship never existed.  The trial court agreed and dismissed the complaint, finding there was undisputed evidence that Defendants did not steal ideas to create the film.

In its de novo review of the trial court’s order, the appellate court affirmed.  As the Court of Appeal outlines in its opinion, Defendants first conceived of the “Avatar” story in 1995 and recorded details of this story in a 102-page script that was circulated around Hollywood.  As a result, a number of allegedly similar elements between the two works were disregarded as those elements could not have been used from Plaintiff’s materials, which were created later.  Further, as to the new ideas that were allegedly added to “Avatar,” the court reviewed each of the alleged similarities, comparing the elements of both “Avatar” and “KRZ,” and found that there was no substantial similarity between the two works on any of the claimed elements.  As to Plaintiff’s proposal that prohibited the recipient from copying any of the “KRZ” material “in whole or in part,” the court found that the “in part” language does not mean that Defendants could not use any part of the “KRZ” material, “no matter how trivial or minor.”  Rather, the court utilized the analysis of “substantial similarity” applicable to copyright cases.    Again, Plaintiff was unable to meet his burden of demonstrating the elements of “Avatar” were substantially similar to the ideas in the “KRZ” story.

The lessons to be learned here are that (1) having documented evidence demonstrating the date of creation will aid in defending a challenge from a secondary creator, and (2) the substantial similarity test is the analysis that will be utilized to determine if there is a “copying.”