After several years of consideration, the U.S. Congress has finally passed legislation that will create a federal statute for the protection of trade secrets, entitled the Defend Trade Secrets Act (“DTSA”). The DTSA had strong bipartisan support, passing in the Senate by a vote of 87-0 (on April 4) and passing by a vote of 410-2 in the House of Representatives (on April 27). President Obama has previously indicated that he will sign the legislation into law and that action is expected to occur soon. With its enactment, the DTSA will represent the first federal law protecting companies’ trade secrets.
Prior to the enactment of this law, businesses have obtained protection of their trade secrets on a state-by-state basis under state statutes. Forty-eight states have adopted a version of the Uniform Trade Secrets Act (“UTSA”), including Minnesota. Although there is significant similarity between most states’ version of the UTSA, some differences do exist and, perhaps more importantly, the courts in some states are more receptive to claims under that statute than courts in other states. The DTSA will not preempt (supplant and replace) state law and claims now will exist under both federal law and state law for the misappropriation of trade secrets (except for New York and Massachusetts, the only two UTSA hold-outs).
Although there is significant similarity between DTSA and the UTSA, including significant overlap and the remedies available under the laws, the enactment of a federal law will create two significant benefits to companies seeking to hold someone accountable for the misappropriation of their trade secrets, including:
A major concern behind the adoption of the DTSA was a desire by Congress to protect the trade secrets of U.S. companies from misappropriation by Chinese companies and from cyber-hackers. Curiously, the new statute as enacted does not expressly address those threats.
Another significant aspect of the DTSA is its authorization of seizure orders, beyond the possible injunctive relief available under the UTSA. Specifically, the DTSA includes a provision allowing, under certain circumstances, a suing party to obtain an ex parte order (order without advance notice to and argument by the other side) from a court authorizing the civil seizure of property wrongfully possessed by the party accused of misappropriating trade secrets. This provision, requiring fairly extraordinary proof, is intended to apply in very rare circumstances where the more conventional approach of seeking an injunction from a court may create significant risk for dissemination of the trade secrets. It may take quite some time for the law to evolve and for organizations to learn how likely courts will be to allow the use of this new remedy.
Injunctions are also available under the DTSA, as is the case with the UTSA, but in the DTSA Congress expressed the clear intention that injunctions under the new law are not intended to be available as “backdoor” non-compete agreements. Congress was particularly mindful of the fact that not all states enforce non-compete agreements fully, with some states broadly prohibiting them.
Other remedies that may be available under both the DTSA and the UTSA include: 1) monetary damages caused by the misappropriation; 2) exemplary (punitive damages); and 3) an award of attorneys’ fees.
Companies interested in fully protecting their valuable trade secrets should be mindful of taking the following actions:
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