Trade secrets, amorphously defined as any confidential business information which gives an enterprise a competitive edge, have not had much federal protection as compared to other intellectual property vehicles such as copyrights, trademarks and patents. Traditionally, trade secret misappropriation cases have been litigated in state court using state law. Even though the majority of states have adopted the Uniform Trade Secrets Act (“UTSA”), there are still notable differences among the various version of the UTSA implemented by the individual states. This has resulted in inconsistent and sometimes contradictory decisions regarding what a state court considers a “trade secret,” what constitutes “misappropriation” of a trade secret, and what the proper recourse is for a proven misappropriation.
In April 2016, Congress passed the Defend Trade Secrets Act of 2016 (“DTSA” or “Act”), which creates a private cause of action in federal court for companies and individuals seeking to stop potential trade secret misappropriation or to recover damages for actual misappropriation. Most significantly, the DTSA creates uniformity in an arena riddled with uncertainty and state court scrimmages over which state’s law applies and how. The Act creates a level playing field for trade secret litigants and ensures a level of consistency and reliability for adjudication of claims brought in the federal district courts across the country.
The DTSA provides an owner of a trade secret a powerful new mechanism for physically reclaiming trade secrets from a party accused of misappropriation. Upon a showing of “extraordinary circumstances” and only when traditional injunctive relief would be inadequate to protect the owner’s interests, a plaintiff may obtain a seizure order to prevent “dissemination of the trade secret.” The seizure applicant must put up security to obtain the order of seizure and a party who suffers damage as a result of a wrongful seizure has a private cause of action against the seizure applicant for actual damages sustained.
While the DTSA provides for injunctive relief, such relief is limited in order to not hinder employee mobility. Specifically, injunctive relief is not available “to prevent a person from entering into an employment relationship,” unless there is clear evidence of actual or threatened misappropriation. Sensitive business information known to the employee is not enough to trigger injunctive relief – there must be proof of actual or potential misappropriation of that information. Any injunctive restrictions placed on an employee must be tailored to protect against misappropriation and cannot be used as a back door alternative to enforcing a non-compete. Finally, the Act does not allow injunctions that “conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”
In addition to injunctive relief, the DTSA provides for compensatory damages, exemplary damages, and attorney’s fees, but makes an award of exemplary damages and attorney’s fees contingent on an employer’s disclosure to its employees of the DTSA’s immunity provision, which permits an employee to disclose a trade secret to a government official or to an attorney as part of an anti-retaliation suit or as part of an investigation into suspected wrongdoing. Employers are therefore encouraged to update their employee handbooks and employment contracts to reflect the immunity notice requirements of the DTSA.
Finally, while the Act provides a new federal cause of action for trade secret misappropriation, it does not preempt or supersede current state laws or state court actions on trade secrets. This means a trade secret owner will have the option of bringing state law claims in state court or proceeding in federal court under the DTSA. This procedural dichotomy will undoubtedly result in forum shopping and may give plaintiffs the ability to choose the most favorable forum for their needs.