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Trade Secrets Stay Secrets
By: Michael A. Holmes, Attorney at Godwin Bowman & Martinez

The Federal Defend Trade Secrets Act

On May 11, 2016, President Obama signed the federal Defend Trade Secrets Act (DTSA) into law. Hailed as a "safeguard for American ingenuity and businesses," the DTSA creates a federal civil action for misappropriation of trade secrets, and protects all four branches of intellectual property rights—trade secrets, patents, trademarks, and copyright. The DTSA also supplements trade secret statutes in 48 states (including Texas). This was the third attempt to pass the law, as the first two attempts died in committee in 2013 and 2014, respectively. The recent string of high-profile corporate and international espionage is likely responsible for the DTSA's passage in 2016.

Benefits

The biggest advantage that the DTSA provides companies is a harmonized federal framework for intellectual property protection across the United States. Most states, like Texas, had already adopted some form of the Uniform Trade Secrets Act (UTSA). However, inconsistent state-by-state application for trade secret issues—which frequently involve parties in multiple states—previously made these cases a nightmare. Now companies can enforce their trade secret rights in federal courts, which may promote a more sophisticated approach to complex intellectual property disputes.

Access to federal courts also means that the federal rules of evidence and civil procedure will apply, simplifying evidentiary issues when misappropriation spans multiple states. Perhaps most significantly, the DTSA does not preempt state law. Thus, Texas companies will be able to choose whether to pursue a claim under the DTSA in federal court, or under the Texas version of the UTSA in state court, based on the specific circumstances underlying their claims.

Ex Parte & Whistleblowers

Two provisions in the DTSA have everyone talking: the ex parte seizure provision and the new protections for whistleblowers. The ex parte seizure provision allows businesses, in “extraordinary circumstances,” to obtain an order from the court without prior notice to the party whose property is being seized. The order authorizes federal law enforcement officers to seize property necessary to prevent the propagation or dissemination of trade secrets made the subject of the action.

A business must first apply to the court and have a hearing within seven days. Upon showing at the hearing that there is immediate and irreparable harm, and that the harm to the party seeking the order outweighs the harm to the party subject to the order, the court can issue an order for seizure. However, the order must: (1) provide for the narrowest seizure of property necessary to achieve the purpose of the order; (2) be conducted in a manner that minimizes any business operations interruptions to third parties; and (3) to the extent possible, not interrupt the legitimate business operations of the person accused of misappropriating the trade secret. Once seized, the property is under the protection of the court until a further determination is made.

The other hot­ topic provision concerns whistleblowers. To encourage employees to report potential violations, the DTSA provides immunity from liability for confidential disclosure of trade secrets to the government for reporting or investigating a suspected violation of the law. The DTSA also provides employees with immunity from liability for disclosing trade secrets in court documents filed under seal—including in anti-retaliation proceedings. It is important to note that the DTSA's definition of "employee" is very broad, and theoretically includes those that would otherwise be independent contractors as well as non-employee consultants.

Remedies

Finally, the DTSA offers a broad range of remedies. First, a trade secret owner may be awarded actual damages, including unjust enrichment damages or damages measured by a “reasonable royalty” resulting from misappropriation of a trade secret. In cases of willful and malicious misappropriation, the trade secret owner may be awarded punitive damages too.  In addition, the DTSA permits either party to recover attorneys' fees upon a showing of bad faith.

To prevent actual or threatened trade secret misappropriation, the DTSA also allows courts to issue temporary and permanent injunctive relief. However, the DTSA protects employee mobility by placing important limitations on injunctive relief against employees and former employees.  First, under the DTSA, a business may not acquire an injunction against an employee that prevents him or her from entering into a new employment agreement.  Additionally, if the injunction places conditions on employment, the conditions must be based on evidence of threatened misappropriation rather than an employee's mere knowledge of a trade secret. Together, these potential remedies deliver a balance of power between companies and employees.

Conclusion

The protections and safeguards that the DTSA affords are much-needed and long overdue. As the world gets more integrated, companies need to be empowered to protect their intellectual property. Thankfully, the DTSA provides a federal forum and robust tools to protect people’s ideas from those who wish to steal them.