The US Congress passed the Defend Trade Secrets Act of 2016 on Wednesday, April 27th. President Obama has stated that he will sign the bill.
This bill creates a new civil action to protect trade secrets. Previously, the only federal-law protection of trade secrets was found in federal criminal law (the Economic Espionage Act). And civil lawsuits were brought under the authority of state law. And almost all states have adopted some form of the Uniform Trade Secrets Act, except New York, Massachusetts, and North Carolina. But despite many states passing some version of the Uniform Trade Secrets Act, each state has a unique body of law with meaningful differences. Thus there was no uniform legal standard applied to trade-secret cases throughout the country, until now.
Because this uniform body of law will apply to interstate or foreign commerce transactions, this should reduce the unpredictability of what trade-secret law will apply in cases involving parties in different states. But the new law will not preempt existing state laws; rather, the new law provides additional legal protection for trade secrets. So trade-secret owners should stay mindful of the differences that exist between the trade-secret laws of various jurisdictions.
Here are some additional highlights:
- Restraints on competition: The DTSA allows a court to put restraints on employees going to a competitor, if needed to protect a trade secret; but the DTSA makes it clear that any injunctive relief cannot run afoul of state law on restrictive covenants, something of particular importance in California.
- Damages & Relief: A party can get the following damages and relief: (1) injunction to prevent actual or threatened trade-secret misappropriation; (2) damages, including (i) actual loss and (ii) damages for unjust enrichment that is not duplicative of actual-loss damages, or (iii) in lieu of other damages, a reasonable royalty; (3) exemplary damages (not more than two-times the amount of damages awarded) for willful and malicious misappropriation; and (4) attorney’s fees for a bad faith trade-dress assertion, a bad faith motion to terminate an injunction, and a willful and malicious trade-secret misappropriation.
- Immunity: Employees will be immune for disclosures to government officials for purposes of “reporting or investigating a suspected violation of law” or disclosures in documents filed in court, if the disclosures are made under seal. If an employer does not give an employee (including contractors or consultants) notice of this immunity, the employer cannot get exemplary damages or attorney’s fees for a DTSA action against that employee.
- Seizures: Trade-secret owner can have the court seize “property necessary to prevent” disclosure of the trade secret “upon ex parte application but only in extraordinary circumstances.” And the court must “take appropriate action to protect the person against whom an order . . . is directed from publicity.” The seizures are enforced by federal law enforcement, who may allow state and local officers to help. Victims of wrongful seizures will have their own cause of action, if the party that moved for seizure cannot support his or her original seizure application at a seizure hearing.
- Statute of limitations: 3 years after the misappropriation of the trade secret is discovered or by the “exercise of reasonable diligence would have been discovered.”
- Effective date: Only covers misappropriation that occurs on or after the date of enactment.
- TRIPs & EU Trade-Secrets Directive: It is interesting to note that the DTSA will “not be construed to be a law pertaining to intellectual property for purposes of any other Act of Congress.” Similarly, the new EU Parliament describes trade-secret protection under the new EU Trade-Secrets Directive as “[a]nother means of appropriating the results of innovation,” in addition to intellectual-property rights. But both the United States and the EU member states have signed the Trade-Related Aspects of Intellectual Property Rights (TRIPs) that defines trade secrets as a form of intellectual-property rights. Hence there is a hesitancy to squarely define and protect trade secrets as intellectual property, despite previous international-treaty obligations. It will be interesting to see how this new attitude impacts future treaty negotiations.