United States: A Comparison of Major Provisions of The Defend Trade Secrets Act to Those of The Model Uniform Trade Secrets Act

The Defend Trade Secrets Act of 2016, Pub. L. 114-153, ("DTSA") was signed into law by President Obama on May 11, 2016, and took effect immediately.[i]  This act constitutes a major expansion of federal law pertaining to the protection of trade secrets.  Most significantly, it introduces a new federal civil cause of action for trade secret misappropriation and places original jurisdiction for that action in the federal district courts.  Among other provisions, the DTSA allows for ex parte seizure orders, creates immunity from trade secret misappropriation actions for whistleblowers, imposes requirements on employers to notify their employees of the whistleblower immunity, and grants trade secret owners the right to file a submission under seal before their trade secret may be disclosed in court.

While most areas of intellectual property law are governed by federal law, trade secret law has historically been primarily governed by state law.  In particular, the Uniform Trade Secrets Act ("UTSA"), a model statute codifying the principles of common law trade secret protection, has been adopted in some form by 47 states (excluding Massachusetts, New York, and North Carolina) as well as by the District of Columbia.  Although the various state trade secret statutes are based on the language of the UTSA, implementations and interpretations vary between jurisdictions.

The DTSA is modeled in many respects after the UTSA.  Accordingly, the substantive provisions governing federal actions under the DTSA bear many similarities with those of state laws modeled after the UTSA.  That said, there are some notable differences between the two.  Note that the following comparison is primarily directed to the UTSA generally, and does not account for differences in implementation and interpretation which exist from state to state.

Definition of a Trade Secret

One difference between the DTSA and the UTSA is the language defining "trade secret."  Under the UTSA a trade secret must derive independent economic value from not being "generally known to . . . other persons who can obtain economic value from its disclosure or use."[ii]  Under the DTSA, the information constituting a trade secret must derive independent economic value from not being "generally known to . . . another person who can obtain economic value from its disclosure or use."[iii]  In practice, however, this difference is not likely to result in the DTSA and the UTSA having different scopes.

Remedies

The remedies available in DTSA actions differ from those available in UTSA actions.  In particular, the DTSA narrows the relief available to an employer in an action against an employee or former employee.  Both actions allow a court to enjoin actual or threatened misappropriation.  The DTSA, however, expressly prohibits injunctions under certain circumstances.  First, an injunction may not issue that prevents a person from entering into an employment relationship.[iv] An injunction may place conditions on such employment, but those conditions must be based on "evidence of threatened misappropriation and not merely on the information the person knows."[v]  Second, an injunction may not issue that conflicts with an applicable state law prohibiting restraints on the practice of a "lawful profession, trade, or business."[vi]

Attorney's fees and punitive damages are available under the UTSA.  In DTSA actions, however, an employer may only recover these forms of damages in an action against an employee if the employer satisfied the whistleblower immunity notice requirement.[vii]  The whistleblower immunity and the notice requirement are discussed further below.

Of note, it is unclear how this provision will apply when an action is brought jointly against an employee and a third party, e.g. a new employer.  In DTSA actions brought against a former employee and that employee's new employer, failure to provide whistleblower immunity notice may prevent recovery of punitive damages and attorney's fees against the new employer; reciprocally, bringing a DTSA action against a former employee's new employer but not against the former employee may cure a failure to comply with the whistleblower immunity notice requirement.

DTSA actions provide access to a new ex parte civil seizure provision,[viii] which states, in part:

the court may, upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.[ix]

The statute enumerates the requirements that must be met before an order may issue,[x] elements the order must contain,[xi]  the manner in which the seizure must be executed,[xii] and post-seizure actions that must or may be taken.[xiii]  An order may only issue if an injunction constitutes inadequate relief because the enjoined party  "would evade, avoid, or otherwise not comply with such an order" and, if given notice, would "destroy, move, or otherwise make such matter inaccessible to the court."  Further, the applicant must be likely to succeed in showing that the information is a trade secret and the person against whom seizure would be ordered misappropriated the trade secret or conspired to misappropriate it.  Procedurally, the court must hold a hearing within seven days of issuing the order.  At the hearing, the party who obtained the order has the burden to prove the findings of fact and conclusions of law necessary to support the order.  A person who suffers damage as a result of a wrongful or excessive seizure has a cause of action against the person who requested the seizure.[xiv]  See Appendix B for the full list of requirements.

Ex parte civil seizure orders are not new to intellectual property enforcement.  In a trademark infringement action, a court may issue an ex parte civil seizure order under 15 U.S.C. § 1116(d)(1)(A) .  In a copyright infringement action, a court may issue an ex parte civil seizure order under 17 U.S.C. § 503.  The requirements that must be met for both orders are similar to the requirements for ex parte civil seizure under the DTSA.[xv]

Civil seizure under the DTSA differs from its predecessors, however, as to what may be seized.  In instances of civil seizure under copyright or trademark law, seizure generally must be limited to infringing goods or evidence of infringement.  Under the DTSA, a court may order seizure of "property necessary to prevent the propagation or dissemination of the trade secret."  This language does not expressly recite that the seized goods must embody or contain the trade secret or provide evidence of misappropriation.    It is unclear what types of property, in practice, will be subject to seizure.  Possible examples are devices containing trade secret information such as cell phones or laptops, devices with the potential to transmit trade secret information such as email servers, or products created using the trade secret which could be reverse engineered in a manner which would expose the trade secret, documents that may refer to other documents containing trade secrets, and documents that may suggest the substance, location or value of the trade secret.  The DTSA does indicate that the order must be restricted to encompass only the "narrowest seizure of property necessary" to prevent propagation and dissemination of the trade secret, and that the seizure must "to the extent possible, . . . not interrupt the legitimate business operations of the person accused of misappropriating the trade secret."[xvi]

Whistleblower Immunity and Employer Notice Requirements

The DTSA provides for whistleblower immunity from both federal and state trade secret misrepresentation actions.[xvii]  An individual faces no criminal or civil liability for disclosure of a trade secret if that disclosure is made solely for the purpose of reporting or investigating a suspected violation of law and is made in confidence to a government official or an attorney.[xviii]  Additionally, an individual faces no criminal or civil liability if disclosure of the trade secret is made "in a complaint or other document filed in a lawsuit or other proceeding" if that filing is made under seal.[xix] An individual who files an anti-retaliation lawsuit against an employer for reporting a suspected violation of law may disclose a trade secret to his attorney and "use the trade secret information in the court proceeding."[xx]

Employers are required to give notice of this new whistleblower immunity "in any contract or agreement with an employee [or other individual performing work as a contractor or consultant] that governs the use of a trade secret or other confidential information."[xxi]  This notice requirement went into effect immediately upon the law being enacted on May 11, 2016, and applies to all agreements or contracts "entered into or updated" after the law was enacted.[xxii]  The DTSA allows compliance by reference to a policy document that "sets forth the employer's reporting policy for a suspected violation of the law" and is provided to the employee.[xxiii]  If an employer fails to comply with these notice requirements with respect to an employee, the employer cannot recover punitive damages or attorney's fees in a DTSA action against that employee.[xxiv]

Protection for Trade Secrets in Court Proceedings

The DTSA provides trade secret owners with a code language to protect their trade secrets from being revealed in court.  It states, in part:

The court may not authorize or direct 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.[xxv]

Courts were obligated to preserve the secrecy of alleged trade secrets in trade secret misappropriation actions before the DTSA was enacted.[xxvi]  Courts, however, often have different views as to what information is properly subject to an under seal filing, when it is subject to secrecy and as what procedures are required for preserving secrecy.  Accordingly, a trade secret owner could not always be sure if and to what extent (e.g., during trial) secret information presented to the court would remain secret.  The DTSA framework gives trade secret owners an opportunity to clearly identify what information should remain secret and why that information should remain secret.  If a proper submission is made, the court is obligated under the DTSA not to authorize or direct disclosure.  This provision allows trade secret owners the opportunity to defend their trade secrets with more confidence that they will not be exposed to the public.

This new provision is likely available to trade secret owners in proceedings arising under the DTSA or the Economic Espionage Act.  There is potential that its availability could be broader[xxvii] or narrower,[xxviii] discussed further in the footnotes.

Procedural Hurdles to Advancing Trade Secret Misappropriation Suits

DTSA actions arise in federal courts, under federal law, and accordingly avoid procedural hurdles that are found in certain states.  Even among states which have adopted the UTSA, the procedural aspects of UTSA actions may vary based on the civil procedure of that state.  In some cases, those procedural hurdles may be substantial.  For example, California trade secret misappropriation actions are subject to California Code of Civil Procedure § 2019.210 which reads, in part:

In any action alleging the misappropriation of a trade secret under the [California] Uniform Trade Secrets Act . . . , before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity . . . .

In many cases, this provision has proven to be a significant obstacle to trade secret misappropriation plaintiffs in California.   The bounds of complex trade secrets are not always clear.  If a plaintiff identifies the trade secret too broadly, or describes in too much of the environment in which the trade secret is used, the court may find that the information was known generally in the industry and therefore is not protected under the California UTSA.  If a plaintiff identifies the trade secret too narrowly, the court may find that it was not misappropriated.  A common tactic employed by defendants in trade secret actions in California is to avoid responding to discovery simply by alleging that the alleged trade secrets lack particularity.  This has in many instances lead to lengthy cycles of repeated motion practice and hearings before courts simply to ascertain whether the trade secret has been identified with reasonable particularity, all of which necessarily occurs prior to discovery.  By avoiding such procedural hurdles, DTSA actions may operate more efficiently and enable plaintiffs that could not have effectively advanced a misappropriation action under their state's law.  In jurisdictions like California, the lack of procedural hurdles under the DTSA may increase the actual or perceived ability to advance court actions seeking to secure relief against misappropriation..

Choice of Law Conflicts

By filing a DTSA action instead of a UTSA action, a plaintiff may avoid choice of law conflicts to the extent that they apply to different states' trade secret law or different states' procedural law.[xxix]  Choice of law conflicts will not, however, be entirely absent in DTSA actions.  They may arise to the extent that different jurisdictions have different laws which "prohibit restraint on the practice of a lawful profession, trade, or business,"[xxx]  which provision is an express restriction on the scope of injunctive relief under the DTSA.

Conclusion

It is expected that UTSA actions will still have a role in trade secret enforcement.  UTSA actions  may provide opportunities to pursue alternate claims that are not subject to certain unsettled aspects of the DTSA.  They may be preferable where a plaintiff specifically wishes to seek a remedy excluded from DTSA actions such as an injunction prohibiting a former employee from entering into an employment relationship with a competitor.  They may also be useful where an employer wishes to pursue punitive damages and attorney's fees but failed to comply with the DTSA whistleblower immunity notice requirement.

In many cases, however, potential plaintiffs will find the new DTSA federal civil trade secret misappropriation action to be an attractive means of protecting their trade secrets or seeking redress for their misappropriation.  The DTSA may serve to expand interest in trade secrets and their viability for protecting secret information as an alternative to other forms of intellectual property, such as patent rights.  For now, we must wait and see how federal trade secret law develops.

[i]     The slip law text of the DTSA can be found at: https://www.congress.gov/bill/114th-congress/senate-bill/1890/text .  It amends §§ 1832, 1833, 1835, 1836, 1838, and 1839 of the United States Code.  Unless otherwise stated, citations to the United States Code within this document are to the code as amended by the DTSA.

[ii]     UTSA § 1(4)(i) (emphasis added).  The UTSA can be found at: http://www.uniformlaws.org/shared/docs/trade%20secrets/utsa_final_85.pdf

[iii]    18 U.S.C. § 1839(3)(B) (emphasis added).  Before the DTSA, § 1836 stated that information constituting a trade secret must derive independent economic value from not being "generally known to . . . the public."

[iv]    § 1836(b)(3)(A)(i)(I).

[v]     Id.

[vi]    § 1836(b)(3)(A)(i)(II).

[vii]   § 1833(b)(3)(C) ("If an employer does not comply with the notice requirement in subparagraph (A), the employer may not be awarded exemplary damages or attorney fees under subparagraph (C) or (D) of section 1836(b)(4) in an action against an employee to whom notice was not provided").

[viii]   § 1836(b)(2).

[ix]    § 1836(b)(2)(A)(i).

[x]     § 1836(b)(2)(A).

[xi]    § 1836(b)(2)(B).

[xii]   § 1836(b)(2)(C)-(E).

[xiii]   § 1836(b)(2)(F)-(H).

[xiv]   § 1836(b)(2)(G).

[xv]   See 15 U.S.C. § 1116(d)(3)-(11); 17 U.S.C. § 503(a)(3); 18 U.S.C. § 1836(b)(2).

[xvi]   18 U.S.C. § 1836(b)(2)(B)(ii).

[xvii] See 18 U.S.C. § 1833(b).

[xviii] § 1833(b) (1)(A).

[xix]   § 1833(b) (1)(B).

[xx]   § 1833(b) (2).

[xxi]   § 1833(b)(3)(A).

[xxii] § 1833(b)(3)(D).

[xxiii] § 1833(b)(3)(D).

[xxiv] § 1833(b)(3)(C).

[xxv] § 1835(b).

[xxvi] See Uniform Trade Secrets Act § 5 ("a court shall preserve the secrecy of an alleged trade secret by reasonable means"); 18 U.S.C. § 1835 ("the court shall enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets").

[xxvii] The provision is in § 1835(b).  The language of § 1835(a) is limited to proceedings arising under chapter 90 of title 18 of the United States Code.  The language of § 1835(b), however, does not expressly contain any such limitation.  If courts interpret § 1835(b) to be independent of § 1835(a), then § 1835(b) could give trade secret owners the right to file a submission arguing that their trade secrets should be protected from disclosure in any federal action; even, perhaps, in cases in which the owner is not a party.

[xxviii] The changes to § 1835 which create § 1835(b) are contained in § 3 of the DTSA.  All of the other changes in § 3 relate to criminal prosecution under the Economic Espionage Act.  §1835(a) applies to "any prosecution or other proceeding under [chapter 90 of title 18 of the United States Code]."  It is possible that Congress overlooked the "or other proceedings" language, understood § 1835(a) to apply only to criminal Economic Espionage Act prosecutions, and therefore intended § 1835(b) to apply only to Economic Espionage Act prosecutions.  The Economic Espionage Act can be found at: https://www.gpo.gov/fdsys/pkg/STATUTE-110/pdf/STATUTE-110-Pg3488.pdf .

[xxix]See, e.g., Christopher Cox, A Recurring Question In Calif. Federal Trade Secrets Cases, Law360, December 9, 2014 (outlining a federal district court split on whether California Code of Civil Procedure § 2190.210 applies in federal court).

[xxx]  See 18 U.S.C. § 1836(b)(3)(A)(i)(II).

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
Cameron Cushman
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