The Federal Trade Secrets Act is Here

April 01, 2017

Last May, 2016, President Obama signed into law the long-awaited Defend Trade Secrets Act (DTSA) which creates a federal private right of action for trade secret misappropriation claims.  Historically, while certain federal protections existed previously in the Economic Espionage Act of 1996, trade secret cases were required to be brought in the various state courts where laws and procedures vary widely. The DTSA is intended to supplement, not preempt, state laws.

The DTSA’s definition of “trade secret” includes all forms and types of information that (1) derives independent economic value from not being generally known to, and is not readily ascertainable through proper means by, another person; and (2) is subject to reasonable measures to keep the information secret.

Significantly, the DTSA authorizes ex parte seizure orders when “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”  Moreover, such ex parte seizure orders can be requested without notice to the adverse party.  To temper this potential for abuse, the DTSA requires a high standard that a plaintiff must meet in a declaration or verified complaint. In addition, the DTSA provides for injunctions, damages for actual loss or reasonable royalties. Willful or malicious violations of the DTSA may result in enhanced damages and attorneys’ fees.

Unlike most states’ laws including California’s, the DTSA does not require plaintiffs to describe their trade secrets with particularity before commencing discovery, which was historically a significant hindrance to plaintiffs bringing trade secret claims. Before the DTSA, most courts required plaintiffs to specify their trade secrets with particularity before starting discovery, which was intended to prevent plaintiffs from improperly using discovery as a means of obtaining a defendant’s trade secrets and then claiming those trade secrets belonged to them.

The DTSA, moreover, contains specific procedures for filing trade secret information under seal and specifies that courts may not authorize or direct the disclosure of trade secret information including at trial or in court opinions unless it first allows the owner to file the trade secrets under seal with an explanation describing why the information should be kept secret. In addition, the DSTA provides immunity from liability for disclosing a trade secret only when the disclosure is confidential and made to the government or in a court filing under seal.

At the same time, the DTSA recognizes and respects the mobility of employees exposed to trade secrets during their employment. Accordingly, the DTSA requires that an injunction against a former employee be “based on evidence of threatened misappropriation” of trade secret information and not simply on the fact that the person may know certain information. The DTSA also provides whistleblower protection to employees who disclose trade secrets to report or investigate alleged fraud or violations of law. Importantly, employers are required to provide notice of this whistleblower protection to employees in all agreements made on or after May 12, 2016; otherwise, employers are barred from recovering punitive damages or attorneys’ fees in any lawsuit against the employee.

The statute of limitations for a DTSA claim is three years from the date on which the misappropriation is discovered or could have been discovered with reasonable diligence, which is consistent with California state law.