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IP Alert: New Era of Federal Trade Secrets Law Begins with the Defend Trade Secrets Act

May 18, 2016

On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA) into law, following a concerted bipartisan effort to usher in a new regime of federal trade secrets law. For the first time, the DTSA recognizes a federal civil cause of action for trade secret misappropriation.

The DTSA introduces several new provisions of federal law. For one, the law now provides a federal mechanism allowing for the seizure of “property necessary to prevent the propagation or dissemination of the trade secret.” Such seizure may be made on an ex parte application, but only in extraordinary circumstances where

(a) an order pursuant to FRCP Rule 65 or another form of equitable relief would be inadequate to achieve the purpose of preventing propagation/dissemination because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order;
(b) an immediate and irreparable injury would occur;
(c) the harm to the applicant outweighs the legitimate interests of the party to which the order would be issued, and the harm to any third parties;
(d) the applicant is likely to succeed;
(e) the party to which the order would be issued has actual possession of the trade secret, and the property to be seized;
(f) the application describes with particularity the matter to be seized, and the location;
(g) the party to which the order would be issued would destroy, move, hide or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such party; and
(h) the applicant has not publicized such request.

While it is yet to be seen, it appears likely that courts will be reluctant to grant an ex parte seizure order except in the narrowest of circumstances, if ever.

In addition, the DTSA creates whistleblower protection for disclosures made “in confidence” to governmental officials or attorneys for the sole purpose of “reporting or investigating a violation of law.” It also provides protection for disclosures made in a complaint or other document filed in a lawsuit under seal. Of significant importance to employers, the Act requires that employers provide notice of this immunity in any contract or agreement with an employee, contractor, or consultant that governs the use of a trade secret or other confidential information, or be precluded from collecting exemplary damages or attorney fees.

In another employment-related provision, the DTSA rejects the so-called “inevitable disclosure” doctrine as a basis for obtaining an injunction under the Act. It is not immediately clear whether this doctrine may be used to establish a claim for money damages.

Through a provision from the Economic Espionage Act of 1996, the DTSA creates liability for U.S. residents and corporations for acts occurring partially or fully outside the United States.

The DTSA does not preempt existing state laws governing trade secret misappropriation, and therefore does not preclude a trade secret misappropriation claim under existing state law, except with regard to the whistleblower protections of the Act. The DTSA also harmonizes, to a degree, the federal definition of trade secret with the definition provided under the Uniform Trade Secrets Act.

Additionally, the DTSA adds economic espionage and theft of trade secret to the list of predicate offenses that may be considered “racketeering activity” under the Racketeer Influenced and Corrupt Organizations Act (RICO).

For more information on this law, please contact Thomas F. Lebens, author of this alert. On May 25, 2016, Tom will be presenting a Fitch Even webinar on this topic—“The Defend Trade Secrets Act: A Federal Remedy at Last.

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