E-News No.47

E-News No.47

New Defend Trade Secrets Act Provides a New Federal Law Protecting Trade Secrets in the US

by Joshua B. Goldberg (Nath, Goldberg & Meyer – USA)

Until now, the only federal protection for trade secrets in the US, was based in the Economic Espionage Act of 1996, which criminalized certain trade secret thefts. As of May 11, 2016, with the signing into law of the DTSA, federal protection for trade secrets in the US is extended to private companies, who can now sue in federal court when their trade secrets have been stolen. This is the first federal cause of action for trade secret misappropriation, having original jurisdiction in the federal courts. This is a welcome change from the previous state-driven approach, where there were a multitude of differences between the states in terms of form, definitions, and scope of protection, particularly in view of the $450 billion per year that trade secret theft is estimates to cost innovators.

The DTSA will likely apply to both us and non-US employers, as it specifically relates to conversion of trade secrets related to products or services used in, or intended to be used in, foreign commerce. Thus, one of the goals of the DTSA is to address the internationalization of trade secret theft. The intent is to make up for one of the biggest long-standing problems in addressing trade secret theft-enforcement. This known issue was previously a result of the patchwork, state-by-state approach that was previously the sole option in the US. Further in this regard, the DTSA specifically includes provisions meant to protect a trade secret owner from losing their trade secret entirely by filing a civil action; the DTSA permits trade secret owners to file a sealed statement with the court explaining why the secret should be protected, and hopefully preventing the secret from becoming publicly known.

Some of the remedies specifically included in the DTSA are:

  • Damages for both actual loss and unjust enrichment.
  • Reasonable royalties for the length of time of the improper use.
  • Injunctive relief.
  • Civil and criminal immunity for whistleblowers.
  • Increased criminal penalties.
  • Ex parte property seizure upon a showing of “extraordinary circumstances”.

The ex parte seizure is one of the key provisions of the DTSA letting trade secret owners seek an order to seize allegedly stolen trade secret items in the defendants’ possession. This is an entirely new type of provision, with no foundation in any previous state or federal law. Essentially, the ex parte seizure provision can enable a judge to seize a defendants (and possible key competitor’s) assets without the defendant even knowing about the action. Of course, the DTSA contains many “safeguards” to avoid this provision being abused, my expectation is that judges will view any such request with a very critical eye, and will err on the side of protecting the ex parte defendant, rather than the plaintiff.

Of course, the preceding state system remains in place, existing side-by-side with the new federal regime. For the immediate future, this may cause some difficulties, as company practices and litigation have to take into account both the state and federal laws. Accordingly, it is expected that many, if not most, trade secret plaintiffs will bring both state and federal trade secret causes of action, increasing the costs of trade secret litigation. It remains to be seen how or if this issue will be sorted out. While passage of the DTSA is an important step to having a consistent federal trade secret law apply across the US, it is likely to be at least several years before federal district courts have seen a sufficient number of cases for a cohesive, comprehensive enforcement regime to be established.