Client Alert: The Defend Trade Secrets Act Is Signed Into Federal Law

On May 11, 2016, President Barack Obama signed into law the Defend Trade Secrets Act, a culmination of a lengthy bipartisan effort to provide full federal protection to trade secrets.

The new federal law is an effort to harmonize the current patchwork of state laws protecting trade secrets and create a single nationwide framework for litigating trade secrets disputes. Legal commentators consider the DTSA to be the most significant expansion of federal intellectual property rights since the 1946 passage of the Lanham Act, which provides federal protection to trademarks.

Under the new law, companies for the first time have the right to file a federal cause of action for trade secret misappropriation. Prior to its passage, civil protection of trade secrets was a creature of state law only. Currently, federal statutes already provide for civil protection of other forms of intellectual property, including copyrights, trademarks, and patents. While most states have adopted some trade secret statute based upon the model trade secrets law, the Uniform Trade Secrets Act, not all have done so, and the statutory provisions they enacted have varied.

Proponents of the new statute hope that it will allow for the development of more predictable case law, and shift more litigation to federal courts that they believe are better equipped to handle interstate and international trade secrets disputes. Notably, however, the DTSA does not preempt state laws already addressing trade secrets. Rather, it will coexist with state laws and not modify or influence them.

What does the passage of the statute mean for companies?  First and most importantly, it provides for broader access to the federal court system. Federal courts now have subject matter jurisdiction over trade secret disputes, enabling companies to pursue misappropriation claims there. The law also provides for new and potentially valuable remedies to trade secret owners. For example, its most controversial remedy provides for ex parte seizures of misappropriated trade secrets in extraordinary circumstances, such as if the trade secret owner believes the defendant is about to take the trade secrets out of the country. A plaintiff satisfying its stringent requirements may use law enforcement to seize stolen information without providing advance notice to the defendant. There is no comparable provision in the Uniform Trade Secrets Act or any state law.

Finally, an aspect of the DTSA that is immediately relevant to companies is its whistleblower provision. The DTSA creates civil and criminal immunity for whistleblowers that disclose trade secrets under certain circumstances. Companies must provide notice of this immunity to employees and contractors in their confidentiality agreements. Those that fail to do so will not be able to utilize all remedies that the DTSA provides, including its provisions for attorneys’ fees and exemplary damages. Companies hoping to benefit fully from the DTSA’s remedies need to amend their confidentiality agreements to comply with this provision.

For more information, contact Thomas Harvey at tharvey@coblentzlaw.com or Karen Frank at kfrank@coblentzlaw.com.