News Flash: New Federal Trade Secrets Act in the United States

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By: Jonathan P. Osha

President Obama signed the Defend Trade Secrets Act (“DTSA”) into law on May 11, 2016.  The DTSA for the first time provides a private cause of action for trade secret misappropriation at the federal level.  Previously, prosecution of trade secret theft at the federal level was limited to criminal actions brought by the federal government.  Private actions for trade secret theft were previously available only on a state by state basis under state laws.

Enforcement of trade secret rights will continue to be available at the state level, meaning the DTSA and state laws will exist in parallel.  However, the DTSA likely will be an attractive option for companies involved in interstate or foreign commerce.  In addition, the DTSA sets a national standard that, as cases under the new act are heard and decided, will develop a uniform definition across the United States of what constitutes a theft of trade secrets.

One controversial aspect of the DTSA is the introduction of an ex parte seizure process in extraordinary circumstances.  The Act provides,

Based on an affidavit or verified complaint satisfying the requirements of this paragraph, the court may, upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.

Materials seized through this process would be required to be placed in the custody of the court, pending a seizure hearing.  A person who suffers damage as a result of a wrongful or excessive seizure would have a cause of action against the applicant for the seizure order.

The DTSA provides for remedies both in the form of injunctions against actual or threatened misappropriation and damages for actual loss and unjust enrichment, or in the alternative damages based upon a reasonable royalty.  If the trade secret was “willfully and maliciously misappropriated,” the DTSA provides for award of exemplary damages not to exceed two times the amount of damages determined on the bases noted above.

The importance of trade secret protection has been highlighted by several recent, high-profile cases of industrial trade secret theft.  However, protection of trade secrets is an important issue for many companies, in particular those working with technology in the computer-implemented invention space where patenting has become increasingly difficult in the United States due to heightened requirements for what types of inventions are considered eligible for patentability.

Read the Act here.