United States: Congress Overwhelmingly Approves The "Defend Trade Secrets Act Of 2016" Paving The Way For Federal Jurisdiction Over Trade Secret Misappropriation

Trade secrets law is poised to become federalized. After years of unsuccessful efforts to create a federal cause of action for trade secret theft, Congress has now passed The Defend Trade Secrets Act of 2016 (S.B. 1890). On April 4, 2016, the Senate unanimously passed the DTSA. On April 27, 2016, the House ratified the bill by a vote of 410-2. The Obama Administration has already expressed its strong support for this legislation and the President will likely sign it into law within the next couple of weeks. The DTSA will go into effect immediately upon enactment.

The DTSA creates a federal cause of action for trade secret misappropriation that largely mirrors the current state of the law under the Uniform Trade Secrets Act, which has been adopted by 48 states. The DTSA uses a similar definition of trade secrets, a three-year statute of limitations, and authorizes similar remedies found in current state laws. The DTSA also creates an ex parte seizure procedure for use in extraordinary circumstances where the party against whom the seizure is ordered "would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person..." While the seizure may be carried out immediately, the new law provides that the court shall set a hearing not less than seven days after the issuance of the order. Finally, the law protects whistleblowers from retaliatory accusations of trade secret misappropriation, so long as the whistleblowers disclose trade secret information to government or court officials in confidence.

The DTSA will not preempt existing state law, which will preserve and afford plaintiffs options on whether to file federal or state claims and which court to select. It also notably omits any requirement for a trade secret plaintiff to describe its trade secrets with particularity, which is required under California Code of Civil Procedure § 2019.210. Significantly, the DTSA should also prohibit injunctive relief based on the inevitable disclosure doctrine, which has been rejected in a number of states, including California, and thus should not have a detrimental impact on employee mobility.

Thoughts on how you and your company can respond to the DTSA

First, you should update your employment and confidentiality agreements to disclose the whistleblower immunity provisions in the DTSA. These provisions extend immunity from criminal and civil liability to individuals who disclose trade secret information in confidence to federal, state, or local authorities, or to an attorney, for the purpose of investigating or reporting violations of law. The new law conditions recovery of exemplary damages and attorney' fees by an employer on informing its employees and agents of the DTSA's whistleblower protections. This information must be present (or at least cross-referenced) in any agreement governing the use of trade secrets and confidential information. Also, the DTSA only extends the whistleblower protections to cover confidential disclosures to government officials or the courts. As a result, a well-worded provision in an employment agreement will not only enhance your potential recovery from a rogue employee, but it will channel any well-meaning but misguided employees at your company to disclose any trade secret information to government officials, instead of to the media or self-publishing online.

Second, if you have declined to bring trade secret claims against departing employees because of the uncertainty of litigating in state court, consider whether filing suit in federal court would be palatable. Federal courts generally have smaller case loads, allowing them to more directly and efficiently manage the litigation activities, including electronic discovery, ameliorating some of the costs associated with litigating trade secret matters in state court. If you are seriously considering pursuing litigation through a trial and jury verdict, however, consult your outside counsel regarding your state's jury rules. Many states permit a non-unanimous jury to return a verdict in favor of the plaintiff, which generally increases the likelihood of success of a trade secret claim in state court.

Third, take the opportunity to inventory your companies' trade secrets and the protections in place to maintain the confidentiality of those secrets. Preventative measures are far more effective, and less costly, at keeping your secrets safe than methods designed to stuff the proverbial genie back in the bottle. Identify your core trade secrets and apply appropriate information security measures according to the value of those secrets.

Fourth and finally, depending on your company's risk profile, develop response plans for suspected misappropriation and for receiving a seizure order. The new law provides that a party alleging misappropriation may obtain, upon an ex parte application to the court, a seizure order in "extraordinary circumstances". Among other things, the seizure order provisions lay out a complex system under which information may be seized by federal law enforcement officers and retained in a confidential manner by the court. The law also provides for the appointment of a special master to locate and isolate misappropriated information. At the point you find yourself in the shoes of a trade secrets plaintiff, you may need to act very quickly, especially if you wish to use the new ex parte seizure procedures to reclaim your stolen information. Having a plan for what to do in the event of misappropriation will avoid unnecessary delays. On the other hand, if you or one of your employees is subject to a seizure order, you may not have the opportunity for a court hearing prior to the seizure order being carried out.

In addition, if you are in a very competitive space with fluid employee mobility, consider formalizing a seizure preparedness and response plan. The cautionary language of the DTSA seizure provisions should deter judges from permitting cavalier forays between competitors, but there is no guarantee that every judge will exercise restraint. You can prepare for such a worst-case scenario, such as by ensuring customer facing technology is redundantly hosted from different physical locations and that employees do not keep unique work product on the hard drives of their computers. You can also consider a response plan in place so that counsel can immediately respond by moving to dissolve a seizure order, opposing a motion for preliminary injunction, and seeking to modify a posted bond to allow for full recovery when your company sues for wrongful seizure.

Conclusion

The primary effect of the DTSA is to create a federal cause of action for trade secret misappropriation and ensure full access to the federal courts for trade secret litigants. Courts are likely to interpret provisions of the DTSA to be consistent with existing state law, but by federalizing trade secret law, Congress has paved the way for more consistency in an area of law that has been subject to the patchwork law of fifty states. While the ex parte seizure provision provides a powerful weapon, the amendments proposed by the Senate and approved by the House should ensure that seizure orders are limited to extreme circumstances, such as destruction of evidence. Looking prospectively, the DTSA should make trade secret litigation more predictable, as federal courts generate a body of binding federal jurisprudence in this area, and thereby making trade secrets an even stronger means of protecting a company's intellectual property.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
20 Sep 2018, Other, California, United States

CoinAlts is designed to bring together the thought leaders in the cryptocurrency investment space to discuss the investment, legal and operational is​sues for cryptocurrencies as a new asset class.

25 Sep 2018, Conference, California, United States

We're excited to introduce Women's IP Strategy, a 2-day conference that tackles both the IP, legal as well as broader career development obstacles, risks and rewards for women lawyers working in male-dominant industries.

2 Oct 2018, Webinar, California, United States

This CLE webinar will offer suggestions to litigators to help them comply with the new GDPR during e-discovery.

Similar Articles
Relevancy Powered by MondaqAI
Seyfarth Shaw LLP
McLane Middleton, Professional Association
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Seyfarth Shaw LLP
McLane Middleton, Professional Association
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions