United States: New US Law Provides For Federal Private Cause Of Action For Trade Secret Misappropriation

On May 11, 2016, President Barack Obama signed the Defend Trade Secrets Act of 2016 ("DTSA"),1 which creates a new federal private cause of action for trade secret misappropriation. The DTSA amends Chapter 90 of Title 18 of the US Code regarding the protection of trade secrets, which had previously only provided for criminal penalties. On April 4, 2016, the US Senate passed the DTSA, Senate Bill 1890, by a vote of 87-0, and on April 27, 2016, the US House of Representatives passed the bill by a vote of 410-2.

Under the DTSA, the owner of a trade secret may bring a civil action for acts of misappropriation occurring on or after the date of enactment of the DTSA if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. The remedies available include damages and injunctive relief, as well as seizure of "property necessary to prevent the propagation or dissemination of the trade secret" based on an ex parte application by the trade secret owner to a court. The DTSA also provides for security and protection of the subject trade secrets while in the custody of the court.

Misappropriation and Remedies Under the DTSA

The acts for which a person may be civilly liable for trade secret misappropriation under the DTSA are similar to those specified in the Uniform Trade Secrets Act ("UTSA"), as the DTSA's added definition of "misappropriation" is virtually identical to that in the UTSA.2 Generally, acts of misappropriation include acquisition or disclosure of a trade secret that was acquired by improper means, or where there was a duty to maintain the secrecy of the trade secret, or where the trade secret was acquired by accident or mistake. Excluded from the definition of "improper means" are acts of "reverse engineering, independent derivation, or any other lawful means of acquisition."

The remedies available under the DTSA include injunctions and various forms of damages. An injunction may prevent actual or threatened misappropriation, but may not prevent a person from entering into an employment relationship, and any conditions placed on employment may be based only on evidence of threatened misappropriation (and may not be based merely on the information the person knows—a deviation from the so-called "inevitable disclosure doctrine"). The injunction may also require affirmative actions to protect the trade secret or (in exceptional circumstances that render an injunction inequitable) condition future use of the trade secret upon payment of a reasonable royalty for a certain period of time.

The damages available range from actual loss, to unjust enrichment, to reasonable royalties. Exemplary damages of not more than two-times the actual damages are also available in instances of willful and malicious misappropriation. Finally, reasonable attorney fees may be available to the prevailing party where 1) the trade secret is willfully and maliciously misappropriated, 2) the claim of misappropriation is made in bad faith (which may be shown by circumstantial evidence), or 3) a motion to terminate an injunction is made or opposed in bad faith.

The statute of limitations (SOL) applicable to a cause of action for trade secret misappropriation pursuant to the DTSA is three years, running from the date on which the misappropriation is discovered or should have been discovered. A continuing misappropriation is considered a single claim for purposes of the applicable SOL.

Civil Seizure

The DTSA permits a court, based on an ex parte application in "extraordinary circumstances," to issue an order seizing property "necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action." The applicant must provide an affidavit or verified complaint, and the requirements for issuing such an order are strict—including, among other things, that specific facts in the ex parte application demonstrate that "the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order" and that the party named in the order misappropriated the trade secret or conspired to do so. In other words, ex parte orders may only be directed against wrongdoers, not against innocent third parties.

Any seizure order issued by a court also must comply with certain requirements, largely directed to ensuring that the seizure is narrow and minimally disruptive to legitimate business operations and protecting from disclosure the seized property until the parties have an opportunity to be heard in court. The order also must require the applicant who obtains the seizure order to provide security to cover damages for wrongful or excessive seizure or attempted seizure.3

Following a seizure order, the court must hold a seizure hearing, generally within seven days after the order has been issued. At the hearing, the party that obtained the order has the burden of proof to show the facts necessary to support the order. If that party fails to meet its burden, the order shall be dissolved or modified appropriately.

Security and Protection of Materials in the Custody of the Court

According to the DTSA, any materials seized pursuant to a court order must be taken into the custody of the court, and the court is required to secure the material from physical and electronic access. If the materials are (or are stored on) a "storage medium," the court is required to prohibit the medium from being connected to a network or the Internet, unless the parties otherwise consent. The court is also required to protect the confidentiality of seized materials that do not relate to the subject trade secret. The court may appoint a (nondisclosure-bound) special master to locate and isolate the trade secret material and facilitate return of unrelated property and data to the person from whom the material was seized. Further, a party who has an interest in the material seized may make a motion to encrypt the material. Such a motion may be heard ex parte.

Miscellaneous

In addition to creating the first federal private cause of action for trade secret misappropriation, the DTSA amends several aspects of the existing statutes related to criminal liability and addresses other issues. For example, it increases the fines available for criminal theft of trade secrets from not more than $5,000,000 to "not more than the greater of $5,000,000 or 3 times the value of the stolen trade secret to the [violating] organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided."

The DTSA also provides for immunity for confidential disclosure of a trade secret to a government official or a lawyer solely for the purpose of reporting or investigating a suspected violation of law, or disclosure made in a court filing if made under seal. The DTSA further protects from liability anti-retaliation plaintiffs who disclose trade secrets to their lawyers and use the trade secrets in court filings, as long as the filings are under seal and the plaintiff does not disclose the trade secret, except pursuant to court order. Employers are required to provide notice of the foregoing immunity in any contract or agreement (either new or updated after enactment of the DTSA) that governs the use by an employee (including contractors or consultants) of trade secrets or other confidential information. This can be accomplished by providing the notice directly in the contract or agreement, or by cross-referencing a policy document provided to the employee that shows the employer's reporting policy for suspected violations of the law. The penalty for an employer failing to provide the required notice is the unavailability of exemplary damages or attorney fees for any willful, malicious, or bad faith actions, as discussed above, against the employee to whom notice was not provided.

Conclusion

The DTSA will provide an important new tool for pursuing those who misappropriate trade secrets and may provide added incentive to use trade secret protection, where appropriate. Private causes of action for trade secret misappropriation currently vary state by state, and this new federal cause of action should enhance the ability of owners to enforce their trade secrets. The availability of a civil seizure, in addition to flexible injunctive relief and a variety of damages models, makes the DTSA a potentially powerful weapon. As with any new law, however, much will depend on its application in the courts. Moreover, considering the ongoing existence of state-based trade secret laws, trade secret owners will want to carefully consider the legal mechanism best suited to their needs in any particular case. Separately, employers should be aware of the new required notice that, under the DTSA, will need to accompany contracts and agreements with employees (and contractors and consultants) governing the use of trade secrets and other confidential information.

Footnotes

1. The text of the bill can be found at https://www.congress.gov/bill/114th-congress/senate-bill/1890/text.

2. Existing 18 U.S.C. § 1839(3) contains a definition of "trade secret" that is likewise similar to that in the UTSA.

3. The DTSA provides a cause of action for a person who suffers damage from wrongful or excessive seizure, which is not limited by the posted security. The relief available is the same as under section 34(d)(11) of the Trademark Act of 1946, which includes "damages for lost profits, cost of materials, loss of good will, and punitive damages in instances where the seizure was sought in bad faith, and, unless the court finds extenuating circumstances, to recover a reasonable attorney's fee." 15 U.S.C. § 1116(d)(11).

Originally published May 11, 2016

Learn more about our Intellectual Property practice.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2016. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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
 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.