In Part 1 of this post, we began the discussion of what the Defend Trade Secrets Act, passed in May 2016, really means for employers in defending their trade secrets. In particular, Part 1 addressed some of the “good” the DTSA offers for employers, particularly: (1) a clear path to federal court, (2) consistency in application, and (3) ex parte seizure orders. In this Part 2, we address the rest of the good — five more positive benefits of the DTSA for employers.
4. No Replacement/Preemption of Existing State Laws. The DTSA is careful to emphasize that it is not intended to replace or preempt existing state laws. As such, it is purely an additional basis for remedying trade secrets misappropriation which, at least in theory, has no impact on existing remedies. In practice, courts are likely to analyze DTSA claims together with any additional claims for trade secret misappropriation brought under state law. Over time, courts will likely view federal court interpretations of the DTSA as influential upon how state law trade secrets claims should be applied and interpreted.
5. No Obligation to Describe Trade Secrets with Particularity. Identifying which particular trade secret a former employee is using or disclosing can be difficult—especially within a complaint or other initial pleading very early in litigation involving a former employee who has retained voluminous trade secrets following separation from employment. Yet, many state laws require that trade secrets be identified with such particularity that a defendant is permitted to defend against only isolated allegations. Subject to federal pleading requirements, the DTSA remedies this dilemma for claimants, and, in doing so, likely creates opportunity for a broader scope of discovery during litigation by employers regarding which trade secrets were misappropriated.
6. International Application. As noted in Part 1, the DTSA is actually an amendment to the Economic Espionage Act (“EEA”). That detail is important because the EEA includes provisions addressing its “applicability to conduct outside the United States,” and those provisions appear to apply to the private causes of action created by the DTSA. In particular, it appears that a U.S. organization (including a corporation) or individual citizen/permanent resident can be held liable under the DTSA for misappropriation even when all acts of misappropriation take place outside the U.S. In addition, a non-U.S. organization or citizen may also apparently be held liable under the DTSA for foreign misappropriation so long as “an act in furtherance of the offense was committed in the United States.”
Significant Remedies, Including Injunctions, Damages and Fees. Like the Uniform Act (mentioned in Part 1), the DTSA provides for both injunctive relief and damages. Specifically, the DTSA provides for injunctive relief to prevent any actual or threatened misappropriation, provided that the order does not (1) prevent a person from entering into an employment relationship; or (2) otherwise conflict with an applicable state law prohibiting restraints on the practice of a lawful profession, trade or business. Like the Uniform Act, damages may be measured by actual loss, the unjust enrichment of the misappropriating party, or, in the alternative, a reasonable royalty. Where the misappropriation is shown to have been willful and malicious, double damages and attorneys’ fees may also be awarded.
8. Increased Criminal Penalties. Although criminal penalties have been available under the Economic Espionage Act since before passage of the DTSA, the DTSA substantially increases those penalties. Specifically, the DTSA increases the maximum penalties for a criminal violation from $5,000,000 to the greater of $5,000,000 or three times the value of the stolen trade secrets to the organization, including the costs of reproducing the trade secrets.
In sum, there is much for employers to welcome under the DTSA. In Part 3 of this series, however, we will examine various aspects of the DTSA which present down-sides to employers and create questions about its application in the future.