The Defend Trade Secrets Act:  What It Means for Businesses and Business Owners

On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA).  The DTSA created options to protect trade secret rights, specifically provides for awards of punitive damages, and authorizes a federal cause of action for trade secret misappropriation matters.  The law became effective on May 11, 2016, and has already been the basis of at least one complaint in the US District Court for the District of Northern California.

A New Option for Victims

Prior to the DTSA, state courts were the near exclusive venue for trade secret misappropriation civil claims.  Victims of trade secret misappropriation now have the option to sue in federal court; something that was near impossible due to state law governing trade secret misappropriation civil claims.  The DTSA is a federal statute and thereby creates federal question jurisdiction over causes of action alleging trade secret misappropriation.  There is no pre-emption over state laws.  18 USC 1836(f).One is not required to file a trade secret claim in federal court and can utilize state statutes and state courts when they so choose.

Who Can Sue in Federal Court?

A party with the right to bring a suit is said to have standing.  The DTSA limits civil actions undert eh DTSA to those brought by an “owner of a trade secret”.  The current owner of the allegedly misappropriated trade secret must file the federal lawsuit.

Why Sue in Federal Court Under the DTSA?

The DTSA can often serve business interests better than laws of a particular state; depending on the entity’s specific situation.  Here are just a few of the ways that a federal trade secret action may provide more benefit than one brought in state court.

Ex parte seizure orders.

The DTSA permits a party claiming trade secret misappropriation to seek and obtain a court order seizing the claimed offenders property and assets without hearing from the claimed offender.  This is permitted so as to “prevent the propagation or dissemination of the trade secret.”  18 USC 1836(b)(2)(A)(i). Although the prerequisites to issue an ex parte seizure order are particular in nuance and expansive in scope, the DTSA’s inclusion of this element provides more protections than even the Uniform Trade Secrets Act.

Disclosure Protections.

The DTSA increases protections for those claiming trade secret misappropriation.  Federal District Courts are prohibited under the DTSA from “authoriz[ing] or direct[ing] the disclosure” of information asserted by an owner to be a trade secret unless the owner was given an opportunity to present a filing under seal and describing the interests of the owner in retaining the confidential nature of the information.  See 18 USC 1835(b).

How Can DTSA Protect the Business Further?

The DTSA contains a whistleblower clause.  The clause provides immunity for disclosure of trade secrets to the government for the purpose of reporting violations of law.  18 USC 1833(b)(1).  This immunity must be given in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”  18 USC 1833(b)(3)(A).  Inclusion of this warning and notice in such contracts will enable the trade secret owner to seek punitive damages and/or attorney’s fees under the DTSA.  Employers who do not include this information in agreements related to trade secrets cannot collect attorney’s fees or punitive damages related to violations of said agreements or other violations of the DTSA.

 

What Should Businesses Do Now that We Have the DTSA?

Employers should address the immunity notice in any and all employment, invention assignment, non-disclosure, intellectual property, proprietary information, and other agreements related to trade secret information and/or use.  To the extent that such policies are not already in place, they should immediately be put in place to afford protections to the fullest extent of the law.   The DTSA is a new and more aggressive form of protection for businesses and owners of trade secrets.  Contact Troncellito Law today to get yourself and your trade secrets protected.     The author, Mike Troncellito, is the owner and attorney at Troncellito Law where he concentrates his practice on contract, business formation, and civil litigation matters. 

He can be reached via email at mike@troncellitolaw.com.

    © 2016 – Michael A. Troncellito Jr., Esq.