On April 27, 2016, the United States Congress passed S. 1890, a bill that amends Chapter 90 of Title 18 – the Economic Espionage Act to create a federal cause of action for trade secret misappropriation. This bill is known as the Defend Trade Secrets Act of 2016 (DTSA) and it augments existing state laws protecting trade secrets and provides a federal cause of action for trade secret misappropriation. Before the enactment of the DTSA, trade secret law was a creature of state law. Most states have enacted some form of legislation protecting trade secrets and a lot of those laws were based on the Uniform Trade Secrets Act (UTSA). However, since each state is free to enact its own statute, the rights of a trade secret owner can vary from jurisdiction to jurisdiction. The DTSA was meant to provide additional remedies to trade secret owners in states that have such laws and to create a federal cause of action in every state, including the few that had no such statutes. It is important to note, that the purpose of the Act is not to preempt state laws regarding trade secrets, but rather to provide additional remedies and access to the federal courts.
The DTSA provides new remedies that the Uniform Trade Secrets Act did not provide, most notably the ability to obtain an order for the seizure of property to prevent the spread of the trade secret, but only upon a showing of extraordinary circumstances. To obtain a seizure order under the DTSA, the party seeking the order must provide evidence that:
1. Immediate and irreparable harm will occur to the party seeking the order if no seizure is ordered.
2. The harm to the party seeking the order caused by denying the order is greater than the harm caused to other parties if the order is granted.
3. The party seeking the order is likely to be able to prove the information to be protected is a trade secret and the person against whom the order is sought has misappropriated or conspired to misappropriate the trade secret.
4. The person against whom the order is sought is in possession of the trade secret and the property to be seized.
5. The party against whom the order is sought would destroy, move or otherwise conceal the property or information absent an order issuing.
6. The party seeking the order cannot publicize the requested seizure.
It is notable that the trade secret owner is not allowed access to the property that is being seized – the person against whom the order is issued is merely deprived of their access to the subject property. In addition the party seeking the order has to provide a bond adequate to cover the damages any person may suffer as a result of a wrongful or excessive seizure. Furthermore, in addition to the damages typically available under state statutes based upon the UTSPA, the DTSA allows Courts to order a Defendant to pay a reasonable royalty for their use of a trade secret in situation where an injunction would be inequitable.
Finally, the DTSA contains some additional protection for those accused of trade secret misappropriation. Typically, a trade secret misappropriation lawsuit will begin with a request for the Court to enter an injunction against another party preventing them from using or disclosing the trade secret. The DTSA includes protections or limitations on the ability of the Courts to grant an injunction. Specifically, such an injunction cannot to prevent a person from taking a new job and any conditions placed on an employment relationship must be based on evidence or threatened misappropriation, not merely knowledge of the trade secret. In addition, the injunction cannot conflict with any state law prohibiting restraints on employment. Additionally, if a party can provide circumstantial evidence that a claim of trade secret misappropriation was made in bad faith, then a Court can order such a party to pay the other party’s attorney’s fees.
Unfortunately, navigating trade secret law can be complex because the rights and obligations of the parties involved depend heavily on the individual factual situation underlying each specific dispute. An additional layer of legal protection also means an additional layer of complexity. You should consult with an attorney to make sure you understand how best to protect your trade secrets and/or to avoid being accused of violating another’s trade secret rights.