What Is Defend Trade Secrets Act?

Defend Trade Secrets Act creates federal jurisdiction over the theft of trade secrets. This means trade secret owners can now bring lawsuits under federal law as well as state law, giving plaintiffs more options. It does not replace the state trade secret laws but gives an extra layer of protection. The DTSA applies only to products or services in interstate or foreign commerce.

Signed in 2016, the DTSA makes the law regarding trade secrets more consistent. Though most states follow some version of the Uniform Trade Secrets Act, each state still has its own trade secrets law. This can lead to confusion and inconsistencies in how to bring civil action.

The law covers a broad range of business activities. This includes employment contracts, especially those with a non-disclosure or confidentiality clause. It also covers situations where employees talk about the company's business with a business partner, the public, or friends and family.

The DTSA amends the Economic Espionage Act of 1996 and offers a new solution for businesses that think their trade secrets have been stolen. This is called an "ex parte seizure provision." It allows trade secret owners get an order to seize stolen trade secrets. This may involve a trade secret owner convincing a judge to essentially shut down a competitor's business until the matter is cleared up.

The law also puts new obligations on employers. It contains a "whistleblower" clause, giving immunity to people who report legal violations of trade secrets to the government. Businesses must now include a notice of this immunity in employment contracts.

Why Is Defend Trade Secrets Act Important?

The new law is a significant development in intellectual property law. It does not replace or change the existing trade secret law but tries to create greater uniformity in trade secret protection.

It is based on the state-based Uniform Trade Secrets Act, which was introduced in the late 1970s and has been adopted in some form by 48 states. The new law is an add-on that recognizes the growing need to more effectively help businesses to protect their trade secrets in a world where foreign hacking is more common.

It offers a strong new federal route for companies to protect trade secrets, on top of the existing ability to bring a case under state law. It also introduces new remedies for entities that have had their trade secrets stolen.

How Does a Person or Entity Violate Your Trade Secrets?

The definition of a trade secret is set out in Defend Trade Secrets Act and covers a very broad range of information owned by a person or business.

The legislation states that it covers: "all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing".

A trade secret is any information about a business that could provide a competitive advantage to another person or business. It is something that is not generally known or easily obtainable by others. This can include confidential manufacturing, industrial, or commercial information.

To be a trade secret it must also not be generally known in the commercial world and be of economic value.

When a trade secret is misappropriated and used without permission, that is looked at as unfair practice. The U.S. legal system protects trade secrets just as it limits unfair competition among businesses. If you believe a trade secret has been stolen, it is possible to file a claim.

Misappropriation is the acquisition or disclosure of a trade secret by "improper means," like theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy or espionage through electronic or other means.

Misappropriation of a trade secret includes the following:

  • Industrial or commercial espionage
  • Breach of contract
  • Breach of confidence
  • Electronic surveillance
  • Trespass
  • Bribery
  • Fraud

It does not include "reverse engineering," where a company purchases a product and finds out how it works by laboratory analysis.

Misappropriation also includes where a trade secret is learned through improper means and then told or shown to others.

Some businesses protect their trade secrets using intellectual property laws like patents, trademarks, or copyright. However, this may lead to a piece of information losing its status and protection as a trade secret because once it is disclosed or made public it is no longer secret.

Remedies Available Under Defend Trade Secrets Act

Under the existing law there were two main types of remedy available where there has been misappropriation of trade secrets:

  • The court may grant an injunction (action to stop the trade secret being used), and/or
  • The court may award some form of damages (monetary compensation).

An injunction may stop the thief from using the trade secret and may extend into the future until any benefit from the trade secret is past.

The monetary remedy awarded may be a damages payment to make up for the actual loss of the trade secret, or it may be to make the thief pay back any profits they have gained as a result of using the trade secret, including future royalties.

Exemplary damages can also be awarded sometimes. These are like a punishment where the theft of the trade secret has been "willful and malicious" and are limited to twice the compensatory damages. The court may also order the thief to pay all the legal costs of the case.

Under the DTSA, all these remedies are still available, but it also introduces civil seizure. This is a bit like a temporary restraining order and is a practical, preventive measure to stop the person or entity that has taken the trade secret from benefiting from it by seizing property in order to bar the use or disclosure of the trade secret.

The reason for this new remedy is that the ability of entities to protect themselves against the theft of trade secret property is affected by the time it takes to bring a court case. By the time the court case has been decided, it may be too late and it can be difficult to compensate for the loss of a major competitive advantage in the marketplace.

Such a seizure order can be requested from the court "ex parte," which means it can be done without the alleged thief being told about it or having a chance to be heard in his or her own defense.

The DTSA says that an "ex parte seizure" will only be available through the courts in "extraordinary circumstances" where it can be clearly shown it is necessary and that the court case regarding the trade secret is likely to be successful.

It should be limited only to relevant property and should not interrupt the business operations of the alleged thief. However, it is possible that an ex parte seizure could have a very detrimental effect on a business.

Companies may wish to include the seizure provisions in their rapid response protocols.

What Else Do Companies Need to be Aware of about Defend Trade Secrets Act?

The other new and interesting part of the DTSA is the "whistleblower" provision. This means that immunity from liability (being taken to court) can be given to employees who confidentially disclose a trade secret to the government or to a court (in a court filing made under seal).

Employers are now required to tell their employees about this whistleblower protection. This is particularly relevant to HR departments, as employment agreements and procedures should be amended.

Company legal advisors should also make sure they keep up to date with state and international law developments on the protection of trade secrets.

How To Start a Trade Secrets Claim

To start a successful claim at either state or federal level, you must show three things:

  • There is a "trade secret" that qualifies for protection.
  • There has been reasonable care taken to stop the secret information from being revealed to others.
  • There has been "misappropriation" of the trade secret.

Your lawyer will be able to walk you through this process and help you defend your trade secrets against infringement.

If you need help with understanding the details of the Defend Trade Secrets Act, you can post your question or concern on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.