The Implications of the Defend Trade Secrets Act of 2016 – Yet Another Route to Pursue a Claim for Trade Secret Misappropriation

Chris Hanslik

May 13, 2016

This week, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law. In creating a Federal civil remedy for the misappropriation of trade secrets by way of the Economic Espionage Act of 1996, the DTSA institutes significant changes to trade secret litigation.

First, the DTSA provides:

  • An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

Accordingly, the threshold question of whether a litigant may seek redress for trade secret theft in Federal court is whether the product or service is used in, or intended for use in, interstate or foreign commerce. It is difficult to imagine a product or service that would not meet these criteria. Accordingly, most trade secret cases will likely be DTSA eligible.

Substantively, the Uniform Trade Secret Act (“UTSA”) as it existed pre-DTSA remains unaltered. (In addition to controlling federal trade secret law, the UTSA is the model act for most state trade secret statutes—including Texas’ trade secret act.) The DTSA does not supplant the UTSA or state trade secret law, but instead, simply adds another avenue through which a trade secret claim can be pursued. As slight differences exist between state trade secret law, the UTSA, and the DTSA, litigants may bring their trade secret claims under these different statutes—potentially obtaining different results under identical facts.

The most significant change the DTSA makes is establishing a procedure for the ex parte civil seizure of any property “necessary to prevent the propagation or dissemination of the trade secret.” Essentially, the DTSA civil seizure mechanism is streamlined injunctive relief aimed to sequester any electronic devices suspected to contain a misappropriated trade secret.

However, if the seizure proves excessive or wrongful, the defendant may be entitled to damages stemming from the wrongful retention of the defendant’s property. Specifically, the DTSA’s civil seizure provision allows for the same damages as the Lanham Act’s civil seizure provision including damages for lost profits, cost of materials, loss of good will, and punitive damages in instances where the seizure was sought in bad faith.

Playing out this scenario, if a plaintiff moves under the DTSA’s ex parte civil seizure provision and no misappropriation is ultimately found, the plaintiff could find herself paying a hefty sum to compensate the defendant for an “excessive” or “wrongful” seizure.

Finally, the DTSA also has implications for the drafting of “any contract or agreement with an employee that governs the use of trade secret or other confidential information.” This includes confidentiality agreements, non-disclosure agreements, and separation agreements.

In any such agreement, the employer must now include a reference to the whistleblower immunity provision found in the DTSA. (Alternatively, an employer can satisfy the DTSA notice requirement by referencing any such DTSA notice provision in another agreement between the employer and employee.) Failure to include this notice in any such agreement will preclude an award of punitive damages and attorney’s fees in a DTSA theft of trade secret claim brought by a non-compliant employer—even if the employer ultimately prevails in the lawsuit. Further, if any of these agreements contain venue selection and/or choice of law provisions, these provisions should now be drafted to allow federal trade secret claims to be brought.