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.