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New Trade Secret Protection Coming to a Federal Court Near You

New Trade Secret Protection Coming to a Federal Court Near You

 By:  Dan Cohen – 5/17/16

         On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (DTSA), which amends the Economic Espionage Act of 1996 and adds a civil remedy for misappropriation of trade secrets. The ESA had been limited to criminal remedies with investigations and prosecutions conducted by the U.S. Attorney’s office. The law provides a new federal civil cause of action to trade secret owners whose misappropriated trade secret is “related to a product or service used in, or intended for use in, interstate of foreign commerce.” Trade secret owners can now recover:

    • their actual damages caused by the misappropriation;
    • damages for unjust enrichment;
    • injunctive relief to prevent actual or threatened misappropriation;
    • exemplary damages for “willful and malicious misappropriations (up to twice the amount of actual damages);”
    • reasonable attorney’s fees

          The law also provides authority to courts to condition future use of the misappropriated trade secret on the payment of reasonable royalties where injunctive relief is inequitable. While much of the remedial scheme of the law mirrors state trade secret laws premised on the Uniform Trade Secrets Act, the DTSA provides for one very unique and brand new remedy: the Court may order the seizure of property “necessary to prevent the propagation or dissemination of the trade secret” at issue upon ex parte application (without notice to the defendant or counsel) based upon affidavit or verified complaint.

          Applications for seizure must demonstrate a number of specified facts before the Court can issue the order and have federal marshals seize property. Among those facts are (1) a temporary restraining order would be inadequate; (2) immediate and irreparable injury will occur absent seizure; (3) the harm to the plaintiff outweighs the harm to the defendant; (4) the defendant or those acting in concert with the defendant would destroy, hide or otherwise make the trade secret inaccessible to the court if put on notice. A seizure order requires a hearing within seven days of the seizure and restricts the owner’s access to its trade secret, must protect the defendant from publicity, requires the court to secure the seized property and permits the appointment of a special master.

          The DTSA contains immunity provisions for individuals who disclose trade secret information to the government for the purpose of reporting a suspected violation of law or in a complaint or filing made under seal. Employers are required to provide notice of the DTSA’s immunity provisions to take advantage of the full range of remedies provided under the law. The DTSA states that notice shall be provided “in any contract or agreement with an employee that governs use of a trade secret or other confidential information.” Accordingly, employers may wish to modify their confidentiality agreements to provide appropriate notice of the DTSA immunity provisions.

          It is hard to say how much this adds for employers who have trade secrets worth protecting. State court actions continue to be available as the DTSA does not preempt state law. Employers may like the idea of being in federal court, which was only available in trade secret actions involving diversity of citizenship, unless another federal claim was alleged in the litigation. The federal cause of action may be attractive for the simple reason that many attorneys are not used to being in or are intimidated by being in federal court (of course, we are not such attorneys). Finally, the added feature of an ex parte seizure of a computer or cell phone containing trade secrets is one aspect of the DTSA cause of action, which might tip the scales in favor of pursuing trade secret actions in federal court. However, I would not get too excited about it as seizure orders are only supposed to be entered where there are “extraordinary circumstances.”