Near-Unanimous Congress Federalizes Trade Secret Protection
Topics: New Laws & Legislation, Non-Compete and Trade Secrets
Business owners should be aware that the federal government, for the first time in over half a century, made an important stride to protecting trade secrets in the federal courts. In an era of bi-partisan bickering, the Defend Trade Secrets Act of 2016 (“DTSA”) has cleared congress on almost unanimous votes and is expected to be signed into law by President Obama. On April 4, 2016, the Senate voted unanimously and, yesterday, the House of Representatives voted 410-2 to pass the DTSA.
Employers will be able to utilize federal courts and new remedies to protect themselves against the theft of trade secrets and illegal competition. Of import to those doing business internationally and in other jurisdictions, the DTSA should have the effect of unifying trade secret laws across the country creating more efficiencies for business owners. However, the DTSA does not, at this point, expressly preempt state trade secret protection, so persons seeking to protect trade secrets will have a choice of venue in the future and, under the DTSA, a federal three-year statute of limitations to commence an action, which is the same as California’s statute.
DTSA provides a distinguishing tool, not expressly available in California or many states, for the recapture of stolen trade secrets early in a case without a hearing. DTSA allows a plaintiff, on an ex parte basis, to obtain an order seizing a defendant’s “property necessary to prevent the dissemination of the trade secret that is the subject of the action.” In other words, it is expected that plaintiffs will seek orders compelling the seizure of not only stolen trade secret materials but computers, servers and other media upon which the trade secret information rests. A seizure order requires a significant showing by a plaintiff but may issue without a hearing. The application must provide the court with evidence including a balancing of harms that favors the applicant, demonstrating a likelihood of success and a specific and particular description of the object or objects to be seized. The court’s order must make the “narrowest seizure of property necessary,” minimize impact on third parties and cause the least disruption to the business of the defendant. A bond must be provided, and later, if it turns out that the seizure was in error, the bond secures a source of recovery for the defendant. In addition, a hearing is scheduled within seven days after the seizure. Materials that are seized are held by the court pending that hearing and may not be copied or accessed by any party pending the hearing. And, while this tool sounds helpful and promising, be aware that DTSA provides a new cause of action against a plaintiff for a wrongful seizure.
DTSA’s other remedies are similar to many remedies available under California and other state laws, and include injunctive relief, damages measured by the actual loss of the trade secret, unjust enrichment and/or imposition of a royalty. Also, double damages and attorneys’ fees may be awarded where the trade secret was willfully and maliciously misappropriated. And, attorneys’ fees may be awarded to any party that makes or defends a claim of misappropriation in bad faith. While it is unknown how the federal courts will react to the new tools, all in all, DTSA will provide a new approach to trade secret litigation and a federal court as a forum in such cases.
