The New “Defend Trade Secrets Act”

May 19, 2016
Robert Phansalkar

President Obama has now signed into law the Defend Trade Secrets Act (DTSA), which takes effect immediately and represents a significant change in the way trade secret disputes are likely to be resolved in the United States. The law also extends new whistleblower protections to employees.

The key features of new DTSA are: (1) a new definition of “trade secrets” which differs from the Uniform Trade Secrets Act (UTSA) (2) federal courts will have exclusive jurisdiction over claims brought under DTSA; (3) plaintiff-employers will be able to seek statutory damages and both plaintiffs and defendant-employees will be able to seek attorney fees; (4) whistleblowers are provided addition al protections, including immunity for disclosing trade secrets in certain circumstances; and (5) plaintiffs may seek a unique “civil seizure” remedy for extraordinary violations under DTSA.

Many proponents of DTSA hope that the law will bring more uniformity to trade secret disputes-something UTSA, which is the law in all states except New York, Massachusetts, and North Carolina, has not been able to accomplish. DTSA attempts to streamline trade secrets law by creating a federal framework to address trade secrets, while also building on many of the provisions of UTSA. Nevertheless, DTSA is not just the federal version of UTSA and has some key differences.

One way in which DTSA differs from UTSA is in the definitions, including the definition of “trade secret.” While UTSA limited trade secrets to those secrets not known by “the public,” DTSA provides that a trade secret is information that is economically valuable because it is not known or readily ascertainable by “an other person who can obtain economic value from the disclosure or use of the information.” This broad definition may lead to more findings of a “trade secret” under DTSA.

Further, unlike UTSA, DTSA eliminates the need to satisfy general diversity jurisdiction to litigate trade secret disputes in federal court. Importantly, however, DTSA explicitly does not preempt currently available state remedies. As a result, plaintiffs may still assert state law claims in state court, but with the addition al protections provided under DTSA, it remains to be seen whether plaintiffs will actually pursue these new remedies.

Similar to UTSA, plaintiffs may seek double damages and reasonable attorney fees for willful and malicious violations of DTSA. Notably, defendants may also seek attorney fees where an action brought under DTSA was asserted in bad faith. In both cases, however, only the prevailing party is entitled to its fees.

Further, DTSA provides whistleblowers with addition al protections including immunity from criminal and civil liability for disclosing trade secrets in certain circumstances. Whistleblowers who disclose trade secrets confidentially to the government, to report a violation of law, or in connection with a lawsuit (provided such is done under seal) are immune under DTSA. addition ally, employers must also provide notice to employees of their rights as whistleblowers under DTSA “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Failure to do so may not result in damages for an employee, but it will prevent a plaintiff from seeking statutory damages or attorney fees. Further, it is important to note that DTSA has a broad definition of employees, meaning that the notice provisions likely apply to independent contractors as well.

Lastly, plaintiffs may seek an ex parte “civil seizure” order to law enforcement in cases filed under DTSA. Upon a showing of irreparable harm and a likelihood of success on the merits, among other things, plaintiffs may obtain an order to law enforcement to seize any property from defendants where it is “necessary to prevent the propagation or dissemination” of a trade secret. While this remedy in a civil-action is truly extraordinary, defendants who have had property wrongfully or excessively seized may bring a claim for damages under DTSA against plaintiffs for this remedy.

Together, DTSA presents a significant change in the way that trade secrets will likely be litigated going forward. It seems likely that more of these cases will be litigated in federal court under DTSA, especially in states such as New York where the UTSA has not been adopted. Further, given the addition al whistleblower protections, employees should expect to see clauses in intellectual property and confidential information agreements advising them of their rights under DTSA. Lastly, while broad use of the “civil seizure” remedy should not become the norm, the remedy is a potential risk for employees going forward. Nevertheless, plaintiffs have a strong financial disincentive to not abuse this remedy, as defendants may assert a claim for damages and attorney fees where property was wrongfully seized.

(*Prior results do not guarantee a similar outcome.)