The Defend Trade Secrets Act: Congress Considers a Federal Civil Cause of Action for Trade Secret Misappropriation

Trade secrets are a form of intellectual property that can consist of any piece of information that has commercial value or gives its owner an advantage in the marketplace.  Their value is directly tied to their secrecy, and their security and value is deeply, and often, fatally, impacted if they are stolen or publically revealed.

Currently, trade secret owners can obtain redress for trade secret theft through two avenues: federal remedies under criminal statutes and the Economic Espionage Act of 1996, and civil remedies available under state law.  Trade secret protection is roughly consistent between states, as most states have adopted a form of the Uniform Trade Secret Act.  Nevertheless, variances exist between state trade secret statutes, and the manner in which trade secret law is interpreted by courts also differs from one state to another.  As a result, a company seeking redress for trade secret theft might obtain different results in the courts of states with identical trade secret legislation.  There are currently no remedies under federal civil law for trade secret misappropriation.

Congress is considering an act to provide federal civil remedies for trade secret theft as an alternative to the relief available to trade secret owners under state law.  In late January, the Senate Judiciary Committee approved the Senate version of the Defend Trade Secrets Act, S. 1890 (the “DTSA”), moving the DTSA closer to a Senate Floor vote.  The current iteration of the DTSA contains the following notable provisions:

  • The statute of limitations to bring a claim under the DTSA will be three years.
  • The DTSA would allow trade secret owners to obtain ex parte seizure orders to recover stolen trade secrets while a full court hearing is pending.  Such seizure orders are only to be granted in “extraordinary circumstances,” upon a rigorous showing regarding ownership of the trade secret, theft of the trade secret, and the lack of harm to third parties should the ex parte order be granted.  Seized materials are to remain in the custody of the court pending a full hearing.
  • Under the DTSA, courts may not authorize the disclosure of trade secret information in litigation unless the trade secret owner is allowed the opportunity to submit the information under a seal describing the owner’s interest in preserving the confidentiality of the information.
  • The DTSA attempts to balance employee mobility against trade secret protection: trade secret owners can obtain injunctive relief to prevent actual or threatened disclosure of trade secrets, provided; 1) the injunction is supported by proof of actual or threatened misappropriation; 2) the injunction does not “prevent a person from entering into an employment relationship;” and 3) any conditions placed on employment are “based on evidence of threatened misappropriation, and not merely on the information the person knows.”  In addition, court orders cannot conflict with state laws prohibiting restraints on the practice of a profession, trade, or business.
  • “Safe Harbor” provisions in the DTSA will shelter whistleblowers who disclose trade secrets in confidence to government officials or in lawsuits alleging retaliation by an employer.
  • The DTSA will require an annual report from the Attorney General addressing overseas theft of United States trade secrets and the role of foreign governments in such theft.

The DTSA will not preempt the body of existing state trade secret law, but instead, will provide an alternative form of relief for business owners whose trade secrets have been misappropriated (particularly those whose business operations span multiple states).  If enacted, it will provide trade secret owners an additional tool to add to their enforcement arsenal.

The DTSA has garnered strong support in both the House and the Senate, and a variant of the DTSA is expected to pass into law in 2016.  — Mary Witzel

UPDATE (5/23/16): On May 11, 2016, President Obama signed the DTSA into law.  Litigants are already availing themselves of the federal civil cause of action created by the Act.  See M.C. Dean, Inc. v. City of Miami Beach, No. 16-cv-21731-CMA (S.D. Fla. May 16, 2016); Bonamar, Corp. v. Turkin, No. 16-CV-21746 (S.D. Fla. May 16, 2016); Universal Protection Services v. Thornburg, No. 2:16-cv-00097 (N.D. Tex. May 19, 2016).