Until now, trade secret cases have exclusively been decided under the laws of each state. However, the Defend Trade Secrets Act of 2016 (“DTSA”), signed into law today by President Obama, provides new federal protection for trade secrets. Going forward, this new federal protection should result in a national standard providing greater predictability of legal outcomes for trade secret cases.
While the new DTSA does not preempt existing state law, it provides additional federal protections in the form of ex-parte seizure orders, injunctive relief and monetary damages. The DTSA also provides safeguards against claims made in bad faith, and immunity to parties who disclose a trade secret to the government or an attorney for reporting a suspected violation of law.
Ex-parte Seizure Orders
The DTSA allows trade secret owners to ask federal district courts to order law enforcement officials to seize any property “necessary to prevent the propagation or dissemination of the trade secret” in extraordinary circumstances without a hearing or answer from the accused party.
In light of abuse concerns against small companies and former employees, the DTSA includes important limitations to the seizure provision. To issue an order, the court must find that:
• the party to which the order would be issued (alleged misappropriator) would evade, avoid, or not comply with another form of equitable relief, such as a temporary restraining order;
• immediate and irreparable injury will occur without a seizure;
• the harm to the applicant for the order outweighs the harm to the legitimate interests of the alleged misappropriator and third parties;
• the applicant is likely to show (i) the information is a trade secret, and (ii) the alleged misappropriator used improper means or conspired to use improper means;
• the application describes “with reasonable particularity” the matter to be seized and, to the extent reasonable, its location;
• the alleged misappropriator has actual possession of the trade secret; and
• the applicant has not publicized the requested seizure.
Claims Made in Bad Faith
The ex-parte seizure provision allows targets of such orders to seek damages if they feel the provision has been abused or they were unfairly targeted. If a claim of misappropriation or a motion to terminate an injunction is made or opposed in bad faith, a court may also award reasonable attorneys’ fees to the prevailing party.
Once misappropriation is found, the court will be authorized to grant injunctive relief as “reasonable.” If “exceptional circumstances” render injunctive relief “inequitable,” then the court may order a reasonable royalty for the misappropriator’s use of the trade secret.
This injunctive relief includes preventing or placing conditions on a person “from entering into an employment relationship…based on evidence of threatened misappropriation and not merely on the information the person knows.” However, an injunction preventing or limiting employment cannot “otherwise conflict with applicable state law prohibiting restraints on the practice of a lawful profession, trade, or business.”
The DTSA also provides for compensatory damages for actual loss caused by the misappropriation of the trade secret and any unjust enrichment not included in the actual loss calculation. Alternatively, a reasonable royalty for the use may measure damages. Willful misappropriation may double damages calculated by either method.
The DTSA contains provisions designed to protect whistleblowers. It grants immunity to parties who disclose a trade secret to the government or an attorney for the purpose of reporting a suspected violation of law or in a court filing, such as an anti-retaliation lawsuit for reporting a suspected violation of law.
A National Standard
Supporters of the law are looking for unity, predictability and greater protection from the DTSA. The hope is that the DTSA may provide greater resources to pursue overseas wrongdoers than available in state courts. Also, the DTSA may allow for out-of-state complainants to avoid local jurisdictions hostile to trade secret litigation by pursuing their claims in federal court.
Accordingly, the DTSA should present greater options and flexibility for businesses to protect their trade secrets.