By: Anthony S. Volpe
The DTSA’s Major Points:
- Creates a private federal cause of action for trade secret misappropriation when there is an interstate or foreign component
- Amends but does not repeal the prior Economic Espionage Act
- Provides for substantially higher penalties
- Creates whistleblower protection
- Provides protection for trade secret in court filings
- Enables the seizure to prevent dissemination of the trade secret
- Supplements but does not preempt state trade secret laws
The Defend Trade Secrets Act (DTSA) that President Obama signed on May 11, 2016 amended the Economic Espionage Act (EEA) in several substantial ways. Perhaps the most significant change was the creation of a federal civil action for trade secret misappropriation that runs parallel to but does not preempt existing state trade secret law. By not preempting state trade secret laws and adding a federal action, the DTSA provides additional choices of forum and controlling law for plaintiffs looking to address misappropriation of trade secrets.
Before the DTSA amendments, the EEA only provided a federal criminal cause of action for the misappropriation of trade secrets, which required the attorney general to file charges against the perpetrators. This relegated the victimized trade secret owner to the available remedies under the relevant state law. The DTSA removes this limitation and permits a trade secret owner to seek a civil remedy in federal court.
The EEA’s definition of trade secrets, which now applies to the new civil lawsuits authorized by the DTSA, is not identical to the definitions in the Uniform Trade Secret Act (UTSA) followed by many states. The EEA’s definition of trade secrets, which includes “all forms and types of financial, business, scientific, technical, economic, or engineering information […] whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing” as long as the secret has an economic value from being unknown, and the owner has taken reasonable steps to keep secret, is substantially more expansive than the USTA’s definition.
The most controversial provision of the DTSA (§2(b)2(A)) allows for ex parte seizures to prevent further dissemination of the trade secret. The plaintiff in a trade secret lawsuit can seek an order to seize the allegedly misappropriated trade secret from the defendant without prior notice to the defendant or including the defendant in the proceeding leading to the seizure decision. While the DTSA limits the seizure to extreme circumstances and the plaintiff must demonstrate that no less restrictive methods would be appropriate, there are concerns that the remedy may be abused for competitive purposes.
One new DTSA protection is section (§7(a)3), which provides protection from liability for whistleblowers. Specifically, it provides all employees, contractors, and consultants the right to disclose the employer’s trade secrets in confidence to an attorney or government official for the purposes of reporting a suspected violation of the law; or if such disclosure “is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” This provision is also somewhat unique in requiring employers to provide notice of this whistleblower protection to employees, contractors, and consultants if certain conditions apply.
The DTSA generally focuses on defining procedures for the new federal civil action complaints. However, the act (§3(a)2(b)) also increases the maximum criminal fine for misappropriation of trade secrets from a flat $5,000,000 to “the greater of $5,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.” The goal is to strip all of the economic benefits of the misappropriation from the misappropriating entity by providing considerably harsher penalties for entities found guilty of stealing trade secrets.
Finally, the DTSA allows for a greater degree of confidentiality for trade secret owners engaged in litigation by prohibiting courts from authorizing or directing “the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential.”
Please contact us if you have questions about the DTSA or are in need of assistance with any intellectual property matter.