On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA) into law after flying through both houses of Congress with a near unanimous vote – quite a feat in a highly polarized legislature. Why the relative ease you may ask? Both the President and Congress have emphasized the importance of protecting American businesses’ trade secrets in the global marketplace. However, the Act may be used whenever a trade secret is stolen and the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. That’s right, interstate commerce, meaning that the Act will likely be heavily used by domestic companies suing Americans for theft that occurred at home. Here’s why…
The Act amends the existing Economic Espionage Act of 1996 and provides a private, civil cause of action allowing the owner of a misappropriated trade secret to bring suit in federal court. While each state already has its own trade secret protections, Washington’s Uniform Trade Secrets Act can be found at RCW 19.108 for example, suing in state court can be challenging when the trade secret has crossed state lines, there are various jurisdictions involved, or the company has operations in multiple states. The Act does not preempt state law, but gives plaintiffs an additional option to bring lawsuits directly in federal court and bypassing busy state courts. Remedies for the theft of a trade secret include equitable relief such as an injunction and monetary damages. When the secret is maliciously misappropriated punitive damages and attorney’s fees to the prevailing party are also possible.
Second, the Act provides for civil seizure of the property, containing the trade secret (think laptop, phone, storage device or files, in “extraordinary circumstances” to prevent the dissemination or to preserve evidence. Companies can even ask a judge to have law enforcement seize property on an ex parte basis, meaning without notice to the other side. Before getting too excited (or concerned depending on your view!), the ex parte seizure bar is incredibly high. Companies will have to show immediate harm that outweighs the harm to the person or third parties who would experience the seizure and that another method, like a temporary restraining order, would not be sufficient. Also, if a person or company suffers on account of a wrongful or over-the –top seizure, that person or company can sue for damages, including punitive damages, and attorney’s fees. As the Act, just came into effect, we will have to see how ex parte seizures will play out in practice.
Third, the Act has an interesting public policy feature. It provides protection to whistleblowers by granting immunity from criminal and civil liability for confidential disclosure to government officials (law enforcement) for the purpose of reporting suspected violations of law. This aspect has ramifications for companies. The Act requires proper notice of the immunity provision discussed above be given in any contract that governs the use of trade secrets or confidential information. Many, many agreements contain such provisions – think about employment agreements, independent contractor agreements, non-disclosure agreements, separation agreements and many others. Failure to provide notice will prevent the employer from recovering attorney’s fees and punitive damages against an employee for trade secret theft under the Act – a significant amount of money. Bearing this in mind, employers should consider reviewing any agreements that contain confidentiality aspects.
Companies may view the Act as a great development as it provides additional recourse if an employee or contractor steals trade secrets or proprietary information. However, an employer should still carefully weigh the benefits and drawbacks of moving forward in federal vs. state court given the particular circumstances surrounding the theft of its trade secrets. Finally, it will be fascinating to see how the Act changes the world of intellectual property.