The House recently passed a bill that provides a federal remedy for the theft of company trade secrets. The bill passed easily with a 410-2 vote in favor, sending the bill on to receive President Obama’s signature. The Senate approved the bill with no objections on April 4 (87-0).

Trade secrets are similar to patents, without strict criteria for novelty and usefulness and no expiration date. They are generally defined as a collection of confidential and highly valuable information that gives a corporation a competitive edge. A big difference between trade secrets and other forms of intellectual property (“IP”) law, however, has been in how legal battles play out. Prior to this new bill, trade secret disputes were handled in state courts, with federal law only dealing with criminal enforcement and prosecution for the theft.

The new trade secret bill, the Defend Trade Secrets Act (“DTSA”) covers everything from KFC’s secret spices to Coca-Cola’s formula and search engine algorithms for companies like Google. The hope is that creating a uniform federal system for addressing trade secret theft, it will have a powerful and widespread effect. State laws have thus far proven to be inadequate at managing this growing issue, mostly because each state can take their own approach to trade secret theft. This makes it an expensive and complicated system.

The new bill does have its critics, though. Some IP experts suggest that there is uniformity in state law already. Adding a new law that is designed to be combined with state law and not replace it could have an adverse effect and actually result in the stretching of adjudication costs and time.

But, good or bad, the bill is presently being described by some as the “most significant expansion of federal law in intellectual property since the Lanham Act in 1946.” In other words, this is long overdue.

It’s been estimated that trade secrets equate to approximately $5 trillion, and around $300 billion is subject to theft annually. Enactment of this bill will help to address these critical problems of trade secret theft, which doesn’t only cost the US economy billions of dollars each year, but also stifles innovation.

Organizations across the US have been pushing for reform to trade secret law for some time. They have reminded both the public and politicians that innovators are changing the world through the creation and introduction of new products and technologies. Creativity and innovation go to the heart of products made in the US and when competitors steal that information and research, it makes it increasingly difficult for companies to succeed.

Competition is acceptable and what our global market needs. But stealing ideas to avoid putting in the time and labor in order to produce another organization’s idea for cheaper isn’t competition.

To learn more about the proposed trade secret bill, DTSA, you can contact Revision Legal’s Trade Secret attorneys through this contact form or by calling 855-473-8474.

Image courtesy of Flickr user Casey Marshall.

The Defend Trade Secrets Act: What It Actually Does

The Defend Trade Secrets Act of 2016 (DTSA), Pub. L. 114-153, codified at 18 U.S.C. § 1836 et seq., created a federal civil cause of action for trade secret misappropriation. Before the DTSA, a company whose trade secrets were stolen had to rely on state law — typically some version of the Uniform Trade Secrets Act (UTSA), which has been adopted in 48 states — or on criminal prosecution under the Economic Espionage Act (EEA), 18 U.S.C. §§ 1831-1839, which did not provide a civil remedy. The DTSA changed that by giving trade secret owners a federal forum with uniform procedural rules, nationwide service of process, and access to a powerful arsenal of remedies.

Critically, the DTSA does not preempt state trade secret laws. A plaintiff can bring claims under both the DTSA and the applicable state UTSA in the same lawsuit, which creates redundancy but also flexibility. Plaintiffs can choose the forum — federal or state — and combine DTSA claims with state law claims to maximize the available theories of recovery.

What Qualifies as a Trade Secret Under the DTSA

The DTSA defines a trade secret broadly, consistent with the EEA’s definition. Under 18 U.S.C. § 1839(3), a trade secret is “all forms and types of financial, business, scientific, technical, economic, or engineering information” — including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes — provided that: (1) the owner has taken reasonable measures to keep the information secret; and (2) the information derives independent economic value from not being generally known or readily ascertainable.

The “reasonable measures” element is critical and is frequently litigated. Courts have found inadequate protection where companies failed to: mark documents as confidential; restrict access to sensitive information on a need-to-know basis; include confidentiality provisions in employee agreements; implement password protection and access controls; or conduct exit interviews that remind departing employees of their obligations. A company that does not take reasonable measures to protect its trade secrets may find that information it considered confidential does not qualify for legal protection.

The DTSA’s Seizure Remedy

One of the DTSA’s most powerful — and novel — provisions is the ex parte seizure remedy under 18 U.S.C. § 1836(b)(2). In extraordinary circumstances, a court may, without notice to the defendant, issue an order providing for the seizure of property “necessary to prevent the propagation or dissemination of the trade secret.” This remedy is designed for situations where a departing employee is about to leave the country with stolen files, or a competitor is about to launch a product based on misappropriated data. It is an emergency measure, not a routine remedy, and courts have applied it sparingly. But its availability gives trade secret owners a powerful tool that did not exist before the DTSA.

To obtain an ex parte seizure order, the applicant must show, among other things, that an order to show cause or a temporary restraining order would be inadequate, that the applicant would suffer immediate and irreparable injury without the seizure, that the harm to the applicant outweighs the harm to the party against whom seizure is ordered, and that the applicant has not publicized the requested seizure. These are demanding standards, but they can be met in the right case.

Damages Available Under the DTSA

The DTSA provides a comprehensive damages framework. Under 18 U.S.C. § 1836(b)(3), a prevailing plaintiff may recover:

• Actual damages. The value of the trade secret itself, lost profits, and other quantifiable losses caused by the misappropriation.
• Unjust enrichment. If actual damages are inadequate to fully compensate the plaintiff, the court can award damages based on the unjust enrichment caused by the misappropriation — meaning the benefit the defendant gained from using the stolen information.
• Reasonable royalty. Where neither actual damages nor unjust enrichment provides adequate compensation, a court can award a reasonable royalty — the amount the defendant would have paid for a license to use the trade secret.
• Exemplary damages. If the misappropriation was willful and malicious, the court can award exemplary damages up to twice the amount of actual damages. This punitive element was not available under most state UTSA enactments and is one of the significant advantages the DTSA offers over state law.
• Attorney’s fees. The court can award attorney’s fees to the prevailing party if the claim of misappropriation was made in bad faith, or if willful and malicious misappropriation is found.

The Whistleblower Immunity Provision

The DTSA includes a provision that has important practical consequences for employment agreements: the whistleblower immunity under 18 U.S.C. § 1833(b). An individual cannot be held liable under the DTSA or under state trade secret law for disclosure of a trade secret (a) in confidence to a federal, state, or local government official or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law; or (b) in a complaint or other document filed in a lawsuit or other proceeding, if the filing is made under seal.

Critically, the DTSA requires that employers include notice of this immunity in any agreement with an employee that governs the use of trade secrets or other confidential information. Failure to include this notice does not void the agreement, but it does bar the employer from being awarded exemplary damages and attorney’s fees in an action against an employee who was not provided notice.

Talk to an Attorney

The DTSA provides powerful protections for companies whose trade secrets are threatened — but only if those companies have taken the steps necessary to establish that the information qualifies for protection. Employment agreements, confidentiality policies, access controls, and proper notice of whistleblower immunity rights all play a role in building a defensible trade secret portfolio. Contact Revision Legal’s trade secret attorneys through the form on this page or call 855-473-8474.