Litigation Implications of the New “Defend Trade Secrets Act of 2016”

On May 11, 2016, Congress signed the Defend Trade Secrets Act of 2016 (DTSA) into law, creating the first private cause of action for civil trade secret misappropriation (theft or unauthorized use) under federal law.  Federal law already provided a private civil cause of action for 3 of the 4 forms of intellectual property: patent, trademark, and copyright cases.  The DTSA loops in the fourth and final form of intellectual property: trade secrets.

Trade secrets have been defined as:

“Information, using a formula, pattern, compilation, program, device, method, technique or process, that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use; and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”[1]

Essentially, trade secrets are information, processes, formulas or business strategies that are extremely valuable to Company “A” – the owner of said trade secrets – which Company “B” would love to get ahold of because it would be worth a lot of money to Company “B”.  Hopefully, Company “A” has been taking reasonable steps to keep their trade secrets secret, such as having their employees sign non-disclosure and restrictive covenant agreements and limiting access to trade secret information even within their own company, so that Company “A” can enforce its rights to those trade secrets should Company “B” ever steal them or use them without authorization.

The DTSA does not preempt or eliminate state trade secret law, but rather supplements it.  A litigant can combine its DTSA trade secret claim with any applicable state trade secret law in which it is afforded protection.  As a supplement, however, the DTSA affords litigants, or potential litigants, with several new notable avenues and protections – some of which are discussed herein.  The DTSA affords federal courts with original jurisdiction over these matters.

The DTSA provides litigants with access to federal courts in any case which involves allegations of misappropriation of trade secrets, regardless of the amount in controversy.  The DTSA only applies to any misappropriation which occurs after May 11, 2016.  The misappropriated trade secret must be related to a “product of service used in, or intended for use in, interstate or foreign commerce.”[2]   Until May 11, 2016, civil litigants, and owners of trade secrets, were left with state law avenues as their only remedy.  Some of the federal remedies now afforded to litigants are injunctive relief, damages, and the possibility of double damages for willful or malicious misappropriation.  The DTSA now provides those litigants with an alternative, or additional, avenue to pursue, and hopefully stop, the misappropriation of trade secrets.

Once you have access to the federal courts, you, as the trade secret owner, are afforded numerous protections for your trade secrets throughout litigation.  An issue that often arises in litigation is how to keep your trade secrets a “secret” if you are required to tell the court all about them in litigation. (Remember, an element to a trade secret is the steps one takes to keep the trade secret an actual secret).  Now, the DTSA allows a federal court to issue a protective order to preserve the confidentiality and secret nature of trade secrets at issue in litigation.  Also, the DTSA prevents a court from authorizing disclosure of trade secret information without allowing the trade secret owner the opportunity to file a submission to the court under seal.  Finally, the DTSA strengthens the notion that disclosure of trade secret information in these cases will not constitute a waiver of the trade secret’s “secret” nature.

Finally, the DTSA affords litigants several potential remedies for the victims of trade secret misappropriation, including injunctive relief, damage award, attorneys’ fees and exemplary damages.  A litigant deciding whether to pursue its trade secret misappropriation claim through federal courts should review the restrictive on injunctive relief available to them by filing in federal court.  For example, the DTSA makes it clear that courts are not to prevent anyone from entering into an employment relationship or conflict with state laws regarding restraint on trade (i.e. California’s ban on restrictive covenants).  The DTSA does allow for damage awards for the actual loss and unjust enrichment caused by the theft or misappropriation of the trade secret.  If calculating actual loss is not feasible, which is often the case in these situations, a court may award a royalty, but only for the period of time of prohibited use.  The DTSA also allows attorneys’ fees and exemplary damages of twice the compensatory award for willful or malicious prosecution.

As a business, business owner, or even an employee of a company with trade secrets, it is important to be aware of the DTSA’s new private cause of action, and other provisions, to appropriately protect and enforce your trade secrets.  The DTSA strengthens trade secret law in a number of ways.  As a preventative measure, it is important to ensure that you are taking reasonable measures to protect your trade secrets from being misappropriated. Once a trade secret has been misappropriated, you are now armed with more information regarding your rights and remedies as an owner.  Taking swift and strong action once you are aware a trade secret has been misappropriated is yet another way to strengthen your trade secret and its “secret” nature.

[1] Uniform Trade Secrets Act §1(4) (Defining trade secrets).

[2] 18 U.S.C. § 1836(b)(1).

Questions regarding this article may be sent to Publications@Capehart.com.