Reed Smith Client Alerts

Victims of trade secret theft now have a federal remedy for trade secret misappropriation under the Defend Trade Secrets Act of 2016 (“DTSA”), which President Obama signed into law on May 11, 2016. The DTSA creates a new, federal civil cause of action for trade secret theft, provided the trade secrets at issue relate to products or services that are used in, or intended to be used in, interstate or foreign commerce. The Act is intended to create a uniform body of federal trade secret law, with a national standard for establishing liability for trade secret misappropriation, thus making trade secret litigation more predictable.

The substantive provisions of the DTSA are consistent with the Uniform Trade Secrets Act (“UTSA”), a state law remedy that has been adopted in some form (and not consistently) by most states. But unlike the UTSA, the DTSA empowers a trade secret owner in extraordinary circumstances to obtain an ex parte federal court order “to prevent the propagation and dissemination” of its trade secrets, pending a hearing that must be held within seven days of the seizure order. Though a plaintiff must satisfy a high burden to obtain it, a seizure order may be a powerful new tool for protecting and enforcing trade secrets before they are gone. As a safeguard on abuse of the seizure remedy, the Act provides a private right of action for damages in the event of an excessive or wrongful seizure.

In terms of remedies, under the DTSA, a plaintiff can obtain actual damages and profits for unjust enrichment (if not covered by damages), or alternatively, a reasonable royalty for the wrongful use of the trade secret at issue, as well as punitive damages and attorneys’ fees for willful or malicious misappropriation and fees for claims brought in bad faith.

The DTSA also allows injunctive relief for actual or threatened misappropriation, though it contains certain limitations. Specifically, a court cannot prevent a person from entering into an employment relationship, and any restrictions on conditions placed on employment must be based on evidence of threatened misappropriation, and not merely on the information that a person knows.

The DTSA also provides protection for whistleblowers, insulating them from criminal and civil liability under state and federal trade secret law for disclosing trade secrets confidentially to the government or an attorney in connection with an investigation of unlawful activity, for filing trade secret information with a court under seal, and in connection with employer retaliation suits. The DTSA requires that employers notify employees of this immunity in their agreements addressing protection of confidential information, entered into or updated after the date of enactment (May 11, 2016); failure to comply would preclude recovery of enhanced damages or attorneys’ fees in any action under the DTSA against an employee to whom such notice was not provided.

With original jurisdiction vested in federal courts, the DTSA provides companies the option of litigating trade secret misappropriation claims in federal court for trade secret theft that crosses state and national borders. As the DTSA does not preempt state law, company management and counsel can now make strategic decisions in terms of whether to file a federal or state law claim, among other things, depending on the substantive differences under applicable state law vs. new federal law (including available remedies and injunctive relief), and procedural issues with litigating in a state vs. federal forum.


Client Alert 2016-125