Posted on 5/2/2016 12:57:50 AM By Alexis Payne

On Wednesday, the House of Representatives approved the Defend Trade Secrets Act (“DTSA”) by a vote of 410 to 2. The DTSA is expected to become law once signed by President Obama. The DTSA’s passage has been heralded as one of the most significant developments in intellectual property law in 70 years, despite the fact that the DTSA states it “shall not be construed to be a law pertaining to intellectual property.” (The intent behind this provision is curious. Arguably, an unpublished trademark or patent application would constitute intellectual property and would be covered by the DTSA.)

Implications of the DTSA

The DTSA will amend the Economic Espionage DTSA as 18 § 1836(b) and reads in part:

An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

“Trade secret” is broadly defined under the DTSA to mean:

[A]ll forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.

Further, the DTSA defines “misappropriation” as knowingly obtaining through improper means a trade secret without permission or disclosing or using a trade secret without knowing either that it is a trade secret or that it was obtained under improper means. “Improper means” is defined to include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” Under the DTSA, “misrepresentation” doesn’t include “reverse engineering, independent derivation, or any other lawful means of acquisition.”

The DTSA provides the availability of ex parte seizure as a remedy ordered by courts and enforced by federal, state, and local law enforcement. Further, the DTSA enables courts to grant injunctive relief upon a finding of misappropriation, when reasonable. And if “exceptional circumstances” are shown where injunctive relief would be “inequitable,” courts may order a reasonable royalty for the misappropriating party’s continued use of the trade secret. The DTSA also provides for compensatory damages of either the “actual loss of the trade secret” and “any unjust enrichment” not covered by compensation for actual loss or a reasonable royalty for the use of the misappropriated trade secret. If willful misappropriation is found, courts may double damages and award attorneys’ fees.

As the majority of trade secret cases involve former employees who move to or start a competing business, the DTSA allows for injunctive relief to “prevent (or place conditions on) a person from entering into an employment relationship” if there is “evidence of threatened misappropriation and not merely on the information the person knows.” Any such injunction cannot “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.” Also, the DTSA provides immunity (“whistle blower” protection) for the disclosure of trade secret information to the government or in a sealed court filing.

Why Now?

So what prompted the push for the DTSA? In the past, trade secret misappropriation was more of a local issue best suited for resolution in state court, and states enacted civil trade secret laws to address such disputes. And opponents of the DTSA argue that state trade secret laws are, for the most part, uniform, and adequately govern trade secret disputes. Opponents also contend that the DTSA, which won’t replace state trade secret laws, will complicate litigation and encourage “forum shopping,” thereby favoring plaintiffs. Further, opponents argue that the DTSA’s provisions for the seizure of stolen trade secrets are too broad.

But for the growing number of businesses that operate in multiple states and internationally, the patchwork of states’ trade secret laws has proven to be inefficient. According to the U.S. Chamber of Commerce, publicly traded U.S. companies own trillions of dollars worth of trade secrets. Such companies and other supporters of the DTSA contend that the globalization of trade secret information and the astronomical value thereof require a more sophisticated, federal forum for trade secret disputes.

Key Takeaways

President Obama has expressed his support of the DTSA and is expected to sign it into law soon. Once enacted, the DTSA will apply to any misappropriation that “occurs on or after the date of [its] enactment.” Significantly, the DTSA will provide federal courts with original jurisdiction over civil trade secret claims, although it will not preempt existing federal and state laws. We will continue to monitor and report on the passage of the DTSA and its implications on trade secret litigation.

 

Update: President Obama signed the Defend Trade Secrets bill into law on May 11th. 

"Trade Secrets"