Federal Theft of Trade Secrets Act Enacted

Written By Terry M. Sanks

The Defend Trade Secrets Act (“DTSA”) was signed into law yesterday. The DTSA amends the Economic Espionage Act of 1996 and now provides another means to protect against intellectual property theft. Though federal law already provided for a criminal theft of trade secret cause of action, which could be brought by the federal government, this new federal law creates a private civil cause of action for trade secret misappropriation that can be brought by individuals or business entities if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

Until the passage of this Act, civil actions could only be brought under state law. Even though substantial uniformity exists between the states, a number of differences do exist state to state that could lead to varied results simply due to where an action is brought. Until now, there was no recourse to address such varied results. The DTSA does not eliminate or preempt state trade secret laws. Instead this new law provides an additional cause of action that can be brought against alleged violators. Thus, if a situation arises where the only causes of action involve theft of a trade secret, the aggrieved now has a choice of bringing suit in either federal court or state court. Therefore, just as federal courts have original jurisdiction over actions specific to patent infringement, trademark infringement and copyright infringement, the same is now true with respect to theft of trade secret actions.

Under the DTSA an award of reasonable attorney’s fees to the prevailing party is provided if a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated.

The DTSA also provides for ex parte seizure. Under this provision, a plaintiff may ask a court to order law enforcement to seize any property “necessary to prevent the propagation or dissemination of the trade secret” without affording the accused party an opportunity to present a case before the court, either by way of filing a response or being heard at a hearing. This provision may be used in extraordinary circumstances.

In general, a trade secret includes manufacturing processes, formulas, computer algorithms, industrial designs, business strategies and customer lists. More specifically, under federal law the term “trade secret” is defined to mean “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the another person who can obtain economic value from the disclosure or use of the information.” 18 U.S.C. §1830.

For many businesses, discussing ways to protect one’s trade secrets with a technology-minded trade secret attorney should be a recurring best business practice as a trade secret evaluation or audit should be performed. Additionally, in view of this new law, evaluating current practices is recommended. As an example, to be able to recover exemplary damages or attorney fees under the DTSA against an employee, the employee’s non-disclosure agreement requires a notice of an immunity provision included in the DTSA. Thus, having current non-disclosure agreements evaluated to see if they comply with the DTSA provisions is encouraged.

Going forward, businesses should identify its trade secrets and take reasonable measures to protect them. Doing so is not a new concept. However, with the advent of portable electronic devices, such as smart phones and tablets, which many employers allow to be brought into and used within a work space, the ease at which trade secrets can be misappropriated is now heightened.