Defend Trade Secrets Act Sent to Obama for Signature

After passing the Senate (87-0) and the House (410-2), the bill known as Defend Trade Secrets Act of 2016 (“DTSA”) is off to President Obama for signature.  Every indicator signals the President’s approval of this proposed law.  The DTSA would amend the federal criminal code to create a private civil cause of action for trade secret misappropriation.  The bill expresses the sense of Congress that: (1) trade secret theft occurs in the United States and around the world, (2) trade secret theft harms owner companies and their employees, and (3) the Economic Espionage Act of 1996 applies broadly to protect trade secrets from theft.

Specifically, the bill authorizes a trade secret owner to file a civil action in federal court seeking relief for trade secret misappropriation related to a product or service in interstate or foreign commerce. It establishes remedies, such as an injunction and damages. Attorney fee recovery and exemplary damages are available under the DTSA, but there are several hoops that a company will need to jump through to ensure successful recovery.  Among these hoops is a notice requirement which will require the prior revision of many employment agreements, including, non-compete, nondisclosure, consulting, independent contractor and other, similar agreements.  The statute of limitation is set at five years from the date of discovery of the misappropriation.

A trade secret owner may apply for and a court may grant a seizure order to prevent dissemination of the trade secret if the court makes specific findings, including that an immediate and irreparable injury will occur if seizure is not ordered. A court must take custody of the seized materials and hold a seizure hearing within seven days.  Any party harmed by the order may move to dissolve or modify the order and may also seek relief against the applicant of the seizure order for wrongful or excessive seizure.

The DTSA would not preempt current state trade secret laws, and actions under both state and federal law would be possible.  Depending on the state in which a claim is made, state law may offer more protection than the DTSA.  Unlike many state laws, the DTSA does not embrace the “inevitable disclosure” doctrine which allows arguments that because of the nature of the ex-employee’s new employment or other actions, disclosure of the company’s trade secrets would be inevitable.  The DTSA would require a threat of or actual misappropriation.

Coupled with state laws, the Computer Fraud and Abuse Act, and other similar, federal law, the DTSA may become a powerful weapon for companies that are being robbed of the trade secrets that give them an advantage over their competitors.  If you would like to discuss this bill or other legal matters, feel free to contact our office.