In a post last Fall, I expressed my view that the United States does not need a federal statute providing civil remedies for theft of trade secrets.  That debate is over.  Whether we need it or not, Congress enacted the Defend Trade Secrets Act (“DTSA”) on April 27, 2016.  I anticipate that President Obama will sign the bill.

Update: President Obama signed the DTSA into law on May 11, 2016.

The DTSA permits a plaintiff to pursue a theft of trade secret claim in federal court.  The statute does not preempt state law causes of action under the Uniform Trade Secrets Act, which nearly all states have adopted.  This means that plaintiffs will have the option of selecting federal or state court as the forum for their lawsuit.  When they select federal court, plaintiffs are likely to assert claims under both the federal and state statutes governing theft of trade secrets.

The key differences between the DTSA and Uniform Trade Secrets Act are:

  1. The DTSA provides that the court may order the ex parte seizure of property to prevent the “propagation or dissemination of the trade secret that is the subject of the action.”  Thus, computer servers or documents could be seized by federal law enforcement at the outset of a lawsuit.  This relief is supposed to be only granted in “extraordinary circumstances.”  It will be interesting to see how frequently the federal courts grant requests for ex parte seizure of a defendant’s property.
  2. The DTSA limits the extent to which the court may grant an injunction restricting a person’s ability to work.  A DTSA injunction may not prohibit employment, but it may place conditions on the employment  that are designed to prevent theft of the plaintiff’s trade secrets.  However, for the plaintiff to be entitled to that relief, the plaintiff must present the court with evidence of a threatened misappropriation of trade secrets beyond the fact that the defendant knows the trade secrets.  In other words, merely showing that a former employee with knowledge of trade secrets received an offer of employment from a competitor is not enough to justify an injunction placing conditions on that employment.  Evidence that the former employee intended to use the trade secrets while working for the new employer should be sufficient.
  3. For agreements between employers and employees governing the use of trade secrets entered into or updated after the DTSA is signed into law: The DTSA obligates employers to notify employees that they are immune from liability for disclosing trade secrets to government officials or to an attorney for the purpose of reporting a violation of law.  To incentivize employers to do so, the DTSA prevents employers from recovering punitive damages in a lawsuit against an employee to whom the required notice was not provided.

Photograph by permission of Architect of the Capital

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