President Barack Obama signed a new federal law on May 11 that’s designed to help the nation protect its intellectual property by giving the federal courts broader jurisdiction in civil cases involving the loss of trade secrets.
The new law, titled the “Defend Trade Secrets Act of 2016” also adds some new powers to the federal government and it provides some protections for individuals in dealing with trade secrets.
The primary goal of the DTSA is to give the federal courts original jurisdiction over cases involving the theft or loss of trade secrets. This means that a company can bring suit in federal court to recover losses, and in some cases, it can request an order from the court that the trade secret be seized from those who misappropriated them. The act covers both intentional theft as well as accidental loss of a trade secret.
There’s also a recent addition to the DTSA that provides protection for whistleblowers who pass a trade secret along to the government or to their counsel. This means that an employee or contractor can provide a trade secret to regulators if necessary to prove wrongdoing.
As a part of the whistleblower protection, companies are now required to include the wording about whistleblower protections in their employee or contractor agreements if trade secrets will be involved.
As the law is written, the new protections are only required in new or updated agreements. Theoretically, employees or contractors covered under agreements signed before the DTSA took effect aren’t covered by those protections.
Previously, trade secrets were covered by state laws and most lawsuits involving them were filed in state courts, although existing law already allowed companies and individuals to file trade secret lawsuits in federal court. The difference is that the federal law provides some consistency to trade secret rules for companies that operate in more than one state and they add protections for companies in states such as New York and Massachusetts that have no trade secret laws.
The DTSA also adds the seizure remedy, which wasn’t available under previous laws. According to Robert Milligan, a partner in the law firm Seyfarth Shaw, the ex parte seizures could be invoked when the plaintiff in a trade secret case could show that there was a chance that the trade secret would be destroyed or taken out of the United States. In such a case, the defendant wouldn’t find out about the trade secret suit until federal marshals showed up to seize the secret in question.
“This provides a property right under federal law,” Milligan said. He noted that there are provisions in the law to protect against abuse of the seizure provisions, including the ability of the entity who suffered the seizure to recover costs if the action had been brought in bad faith.
Obama Signs Law Boosting Federal Trade Secret Protections
Milligan said that he and two other lawyers have developed a set of guidelines for his firm’s clients to help them understand how this would affect them, including how to incorporate new provisions into employment and contracting agreements.
“Now there’s uniformity,” Milligan said. While most of the states in the United States have their own trade secrets laws based on the Uniform Trade Secret Act, Milligan said that the states have adopted different versions of that earlier act and that state courts may interpret it differently. In addition, the states may have incorporated unique features to their versions of the UTSA, creating what Milligan called a “Patchwork of regulations.”
It’s worth noting that the DTSA is actually an amendment of the Economic Espionage Act of 1996, which provided criminal penalties to the theft of trade secrets and other intellectual property. Now, with the DTSA, protections are extended into civil cases.
It’s also worth noting that nothing in the DTSA pre-empts the existing state laws created under the UTSA. This means that legal action can still be brought under state laws and that the states can change those laws as needed to fit the circumstances of the companies operating within their borders. However, there is at least some consistency in how trade secret cases are handled, even in state courts.
Unfortunately, the DTSA does nothing to protect against the loss of trade secrets across national borders. While the European Union has also adopted its own trade secret rules, that’s not the case elsewhere. This means that the law does nothing to help companies seek redress from trade secrets lost as a result of cyber-attacks on their networks initiated by nation-states’ hackers with the express intention of stealing trade secrets from U.S. companies.
In addition, there’s going to be a period of time in which various federal courts argue over their own interpretations of the DTSA as cases begin to show up to test the law. While the wording of the DTSA is unusually clear in stating what the law means and how it is to apply, it doesn’t—and can’t—apply to all circumstances.
It’s a pretty sure bet that the details of how the DTSA will be handled will be in flux until the first cases brought under the law make their way to the Supreme Court. There, the clarity of the law and the fact that it was passed by a nearly unanimous bipartisan vote in both houses of Congress will probably reduce the range of interpretations that can be adopted by the courts. But at least now, there is more uniformity at the federal level