Federal Trade Secret Law: Everything You Need to Know
The federal trade secret law, otherwise known as the Defend Trade Secrets Act, provides clear definitions for the terms “trade secret” and “misappropriation.”3 min read
The federal trade secret law, otherwise known as the Defend Trade Secrets Act (DTSA), provides clear definitions for the terms “trade secret” and “misappropriation.” It also provides the option for litigants to sue for misappropriation in federal court.
About the DTSA
In the spring of 2016, President Obama signed the DTSA into law after the Senate and House of Representatives passed it. The Act creates a federal, civil cause of action in cases of misappropriation. When a trade secret is related to a service or product that's used in — or intended to be used in — interstate or foreign commerce, the owner of the secret can bring civil action against a misappropriating party.
The Act gave companies the chance to protect themselves against misappropriation. It also gave them a remedy in federal court. Companies should understand the provisions in the Act in order to sufficiently protect themselves.
The Act is unexceptional in some ways, while also being exceptional. It's a marked change from the prior policy that seemed to treat trade secrets as a lesser concept in intellectual property law.
Trade secret law goes back centuries, as its beginnings date back to the Industrial Revolution. However, it wasn't federally codified until 2016. Although courts interpreted provisions in the DTSA as consistent with state law, by federalizing the law, there now exists more predictability. Instead of using the sometimes inconsistent definitions that each state had for trade secrets, the DTSA makes this area more uniform.
Federal Cause of Action
Before the DTSA was passed, companies had to sue for misappropriation in state courts. Unfortunately, laws concerning trade secrets differed from one state to another. This includes the text in the laws and how the courts applied them.
Each state has its own definition of what a trade secret actually is. States also have different statutes of limitation, and they apply various remedies in cases of misappropriation.
The DTSA makes the statute uniform in federal court cases. The DTSA doesn't preempt the existing laws a state has for trade secrets. It simply allows companies to file suit in federal court. This is a powerful option companies can employ. For those with a national footprint, the Act makes it possible for them to further protect their IP rights.
The DTSA uniformly and specifically defines the terms “trade secret” and “misappropriation.” It has a broad definition of trade secret, so the type of proprietary information that falls under protection is wide-ranging.
Litigants also welcome the specific acts that are considered misappropriation because it gives them additional guidance. The Act considers misappropriation to be the acquisition of a trade secret by an individual who knew, or had reason to know, the secret was obtained using improper means.
How Companies Can Take Full Advantage of the DTSA
Companies that wish to enjoy the full benefits of the DTSA should do the following:
- Update their employment and confidentiality agreements: These agreements should disclose the DTSA's whistleblower immunity provisions. Companies that fail to do this won't be eligible to recover attorney fees or double damages in trade secret litigation.
- Reevaluate their tolerance for trade secret claims: Many businesses were previously deterred from making trade secret claims due to the delays and other uncertainties in state courts. Federal courts have fewer caseloads, so they're able to efficiently and more directly handle such litigation.
- Inventory their trade secrets: They should thoroughly evaluate the current protections they have in place, making sure they're able to maintain confidentiality. Preventative measures are more effective and less expensive than methods they'd have to take once confidentiality has been compromised.
- Develop response plans in cases of suspected misappropriation: Also, have a plan for receiving a seizure order. Litigation in trade secret cases often move very quickly. Having a plan beforehand prevents unnecessary delays that may compromise their rights.
Due to the value that trade secrets hold, it's important for the owners to take all reasonable measures to protect them. The DTSA provides key definitions and remedies to companies and trade secret holders. Instead of relying on the sometimes uneven trade secret laws in each state, litigants have the powerful backing of the federal court system in misappropriation cases.
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