President Obama Signs Federal Act To Protect Trade Secrets

Posted on May 23, 2016

On May 11, 2016, the Defend Trade Secrets Act of 2016 (“DTSA”) was signed into law by President Obama. DTSA, which amends 18 USC 1836, creates a new federal civil cause of action that will allow businesses to obtain damages and injunctive relief and to recover attorney’s fees for misappropriation of trade secrets. Prior to the enactment of DTSA, a company in Michigan could only seek protection of its trade secrets through Michigan’s Uniform Trade Secret Act (“MUTSA”). The federal counterpart to MUTSA applies if the misappropriated trade secret “is used in, or intended for use in, interstate or foreign commerce.” The federal jurisdictional requirement regarding interstate commerce will likely be broadly interpreted and should not impose a significant burden on parties who wish to bring a federal claim.

DTSA allows federal courts to impose a unique “civil seizure” without a hearing upon the request of the harmed party, as long as the requesting party can demonstrate by sworn statement or a verified complaint all of the following:

  1. A normal injunction order would be inadequate;
  2. Immediate and irreparable harm will occur unless the requested seizure is imposed;
  3. Harm to the requesting party substantially outweighs the harm to third parties;
  4. The requesting party is likely to prove that the information is a trade secret and that the misappropriation was by improper means or that the other party conspired to misappropriate the trade secret;
  5. The other party has actual (not suspected) possession of the trade secret;
  6. The requesting party has described the trade secret or information with particularity and has identified the location of the information to be seized;
  7. The other party would destroy or hide the information if given notice; and,
  8. The requesting party has not publicized the seizure.

The seizure order, if issued, will be executed by a federal marshal or other federal law enforcement officer. The order shall provide for a hearing within seven days.

The seized materials will be held in court custody and courts are required to maintain the confidentiality of unrelated items seized. If seizure is ultimately determined to be wrongful, the defendant is entitled to a claim for damages for wrongful seizure.

The court, under DTSA, may award injunctive relief and damages for actual loss, and impose a royalty and exemplary damages of up to 200% of actual damages. A party has three years after discovery of the misappropriation to file suit under DTSA.

Employers seeking to obtain the full benefits of DTSA for misappropriation of trade secrets by employees, contractors or consultants, must provide notice – even if by reference to another document – of the DTSA’s immunity provision in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. The immunity provision allows an employee to disclose trade secrets without retaliation by an employer to the government or, under seal, to a court, if the employee’s purpose in disclosing the information is for reporting or investigating a violation of law. An employer that does not provide such notice cannot recover exemplary damages or attorney’s fees in an action against an employee who misappropriated trade secrets.

DTSA appears to be a very powerful tool for companies seeking redress for trade secret misappropriation. It is, however, not without risk. Additionally, companies that do not comply with all the requirements of the law cannot avail themselves of all of its benefits.