Defend Trade Secret Act of 2016–-Federalizing Trade Secret Law

The Defend Trade Secret Act of 2016 (DTSA) was signed into law on May 11, 2016, and became effective immediately. The DTSA allows an owner of a trade secret to sue in federal court for trade secret misappropriation. Previously, only state law governed civil misappropriation of trade secrets. While the DTSA largely mirrors the current state of the law under the Uniform Trade Secrets Act (UTSA), adopted by 48 states, including Washington,[1] there are some additions found in the new law.

The DTSA imposes the same three-year statute of limitations and authorizes remedies similar to those provided under the UTSA. The DTSA also offers new forms of relief, including a provision permitting ex parte seizure orders (that is, without a hearing or response from the opposing party) to prevent further misappropriation of the trade secret. The DTSA further provides for a new definition of trade secret. The UTSA's definition of a trade secret is a “formula, pattern, compilation, program, device, method, technique, or process.” Under the DTSA, the definition of a “trade secret” is broadened to include “all forms and types of financial, business, scientific, technical, economic, or engineering information…whether tangible or intangible…” [2]

While the primary effect of the DTSA is to federalize trade secret misappropriation actions and ensure full access to the federal courts for trade secret litigants, the DTSA responds to growing concerns regarding the vulnerability of trade secrets from both traditional threats, such as former employees, and new sources of threats, such as cyber-based threats.[3] By federalizing trade secret law, Congress has potentially opened the door for greater predictability and enhanced consistency in this area of the law which has been subject to the jurisdiction-by-jurisdiction variations in laws of 50 states.

Other key provisions of the DTSA center on immunity from criminal and civil liability for confidential disclosure of a trade secret to the government or in court filings. Some additional points regarding immunity:

  • Immunity is also provided to individuals who disclose a trade secret to his/her attorney in a lawsuit against an employer for retaliation for reporting a violation of law;
  • This immunity allows the individual to use the trade secret in a retaliation court proceeding;
  • In addition to providing whistleblower immunity, the DTSA requires employers to notify employees of the immunity by (1) inclusion in an agreement or (2) in a policy document cross-referenced in such an agreement; and
  • Failure to provide employees with notice will result in the employer being ineligible to recover exemplary damages and attorney fees the DTSA otherwise allows for in a suit against an employee.

Early critics of the DTSA cite Congress for having failed to sufficiently define what it means to disclose a trade secret in “confidence.”[4] Regarding the ex parte process for obtaining a seizure order, some are concerned businesses may be left unable to immediately challenge assertions regarding the status of secret information.[5] Additionally, there are concerns that any investigation (not only the investigation of a trade secret owner) could be the pretext for disclosing a trade secret.

While the new federal law is intended to bring greater certainty, there are a number of questions businesses may have concerning the DTSA. Businesses will want to continue to be proactive in protecting valuable trade secrets. Consider taking the following actions: (1) update employment and confidentiality agreements to disclose DTSA whistleblower immunity provisions; (2) take an inventory of trade secrets; (3) evaluate current protections; and (4) make a plan now for responding to trade secret misappropriation.

[1] Washington’s version of the UTSA is found at RCW 19.108 et seq.

[2] See 18 U.S.C. § 1839.

[3] http://www.insidecounsel.com/2016/05/23/the-future-impact-of-the-defend-trade-secrets-act

[4] http://calcorporatelaw.com/2016/05/how-the-defend-trade-secrets-act-of-2016-opens-the-door-to-disclosure-of-trade-secrets/

[5] Id.

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