New Federal Trade Secret Law Protects Businesses

Before now, if an organization had its trade secrets stolen, its only recourse was usually to bring an action against the perpetrator in state court under the Uniform Trade Secrets Act, which was adopted by most states to provide a uniform civil remedy for trade secret theft, or under state criminal laws. The only federal protection for trade secrets was criminal sanction under the Economic Espionage Act of 1996. That changed this May, when President Obama signed into law the Defend Trade Secrets Act, which gives owners of trade secrets a new federal civil cause of action for misappropriation of their proprietary information. The law is intended to provide an alternative to the current patchwork of state laws governing the issue, but not replace them; unlike the federal Copyright Act, for instance, DTSA does not pre-empt state law.

DTSA allows a plaintiff to seek relief in federal court for misappropriation of trade secrets “by improper means” related to a product or service in interstate or foreign commerce. Improper means is defined as theft, robbery, misrepresentation, espionage, or breach of a duty to maintain secrecy. The law establishes civil remedies such as injunctions and damages for actual loss and unjust enrichment, or a “reasonable” royalty where an injunction is not feasible. If a trade secret is “willfully or maliciously” misappropriated, damages may be doubled. Trade secrets are broadly defined to include all forms and types of information that the owner has taken reasonable measures to keep secret, and which derive independent, actual or potential economic value from being unknown to the public.

Notably, under “extraordinary circumstances,” DTSA allows for law enforcement seizure of computers or other property to prevent dissemination of a trade secret if the court finds that an immediate and irreparable injury would otherwise result, and an equitable form of relief is inadequate against the offending party. A court must take custody of the seized materials and hold a seizure hearing within seven days. DTSA also provides for criminal penalties: the greater of $5 million or three times the value of the stolen trade secret to the organization, including expenses for research and design and other costs.

No injunction may interfere with a person’s right to enter an employment relationship or practice a lawful occupation, and any conditions placed on employment must be based on evidence of threatened misappropriation and not merely a party’s knowledge of proprietary information.

The statute of limitations to bring a claim under DTSA is three years from the date that the misappropriation was discovered or reasonably should have been discovered.

The law exempts whistleblowers who disclose trade secrets to the government as part of the reporting of suspected unlawful activity, and also the disclosure of trade secrets as part of a complaint or other document filed in a court proceeding.

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