Signed into law on May 11 of this year, the federal Defend Trade Secrets Act of 2016 (“DTSA”) amends the Economic Espionage Act to create a private civil cause of action for trade secret misappropriation, and it has been hailed by the New York Times and other authorities and media outlets as the “most significant expansion in federal intellectual property law in the past 70 years.” Yet, for decades, state trade secret laws have already been a fundamental source of protecting the confidential information of business in the United States. Indeed, the DTSA itself is based on a model law, the Uniform Trade Secrets Act (the “Uniform Act”) created in 1979, and 48 states have passed variations of the Uniform Act. So what does the DTSA really mean for employers seeking to protect their trade secrets? In the first of this multi-part series of posts, we examine some of the positive attributes of the DTSA and how it is likely to be applied in the future. In future posts of the series, we will discuss negative attributes and also some of the many questions left unanswered by the text of the DTSA and the six courts which have published written opinions on its provisions to date.
Part 1 (Some of the Good)
The DTSA represents an additional source of protection for employers seeking to enforce confidentiality of its information, and that development is encouraging to many businesses for a variety of reasons.
1. A clear path to federal court. In some jurisdictions, pursuing claims in federal court rather than state court can yield a variety of advantages, including more attention to pleadings and more efficient avenues towards non-party discovery. Under the DTSA, pursuit of trade secrets claims in federal court are no longer limited to state law disputes between litigants of diverse states or disputes involving other federal claims to which state law trade secrets claims are somehow related. Indeed, the DTSA provides federal jurisdiction and thus creates an additional forum for litigants who might otherwise be limited to state court. Of course, in addition to jurisdiction over federal trade secrets claims, the federal court will also “have supplemental jurisdiction over all other claims that are so related to [the trade secrets] claims . . . that they form part of the same case or controversy.” 28 U.S.C. § 1367(a). So, litigants are permitted to pursue not only their trade secrets claims in federal court, but also additional, related claims they may have against one another under state law. Significantly, this will include claims under existing state law trade secrets statutes modeled after the Uniform Act.
2. Consistency in application. Despite the influence of the Uniform Act and its passage in one form or another in the vast majority of states, there are significant differences in trade secrets law that vary from state to state. A stated purpose of the DTSA is to harmonize the many state variations and distinctions in this area of the law. For example, while state laws have a variety of limitations periods, the limitations period under the DTSA is three years and, unlike the laws of some states, a continuing misappropriation constitutes a single claim under the DTSA such that each continuing day of misappropriation does not restart the limitations period. Consistency of application regarding such issues will increase predictability of the law’s application to a given dispute, and is therefore likely to govern behavior more effectively.
3. Ex Parte Seizure Orders. The DTSA provides for the express availability of a court-ordered seizure of misappropriated trade secrets by law enforcement. This is clearly a positive development, at least in theory, for employers who want the availability of additional measures to protect their trade secrets from disclosure and competitive use. Yet, in practice, this procedure is intended for extraordinary circumstances only and is not likely to be used often. Indeed, the conditions for a seizure order are burdensome to say the least.
Before ordering an ex parte seizure the court must find all of the following conditions are met: (i) another form of equitable relief would be inadequate because the party to be enjoined would evade, avoid, or otherwise not comply; (ii) immediate and irreparable injury will occur if such seizure is not ordered; (iii) the harm to the applicant outweighs the interests of the party to be enjoined and substantially outweighs potential harm to third parties; (iv) the applicant is likely to succeed on the merits; (v) the party to be enjoined has actual possession of the trade secret; (vi) the application describes the matter to be seized with reasonable particularity; (vii) the party to be enjoined would destroy, move, hide, or otherwise make such matter inaccessible to the court; and (viii) the applicant has not publicized the requested seizure.
Further, the ex parte seizure order must be meticulously detailed such that it provides for the narrowest seizure of property necessary, detailed guidance to law enforcement (including permissible hours of seizure and the directions about the amount of force authorized), and instructions on protecting the seized property from disclosure. Certainly, ex parte seizure orders will be the exception rather than the rule. These are welcome changes for employers under the DTSA.
In the next post in this series, we will review some additional “good” brought about by the DTSA. After that, the next part we will examine some aspects of the DTSA which present possible down-sides to employers and create questions about the application of the DTSA going forward.