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Congress Passes Federal Trade Secret Protection Legislation

    Client Alerts
  • May 02, 2016

Last week in a rare bipartisan move, the House of Representatives passed the Defend Trade Secrets Act of 2016 (DTSA). The Senate approved the bill earlier in April, and President Obama says that he will sign the legislation, which will for the first time provide uniform, nationwide legal remedies for theft of proprietary business information.

DTSA was prompted by increasing evidence that foreign governments and individuals have systematically raided U.S. business’ trade secrets, resulting in billions of dollars in losses to the economy. However, DTSA also provides employers with new legal tools intended to deter and punish employees who misappropriate business secrets for their own purposes.

Currently, each state has its own trade secret protection legislation. While most of these laws are based on the Uniform Trade Secrets Act, many states have only adopted parts of that model, or have in place variations that make it difficult for employers with multistate operations to have a single trade secrets protection policy.

DTSA provides for the first time, a private civil action in federal court for misappropriation of trade secrets. Like existing state laws, DTSA allows injunctive relief, compensatory damages and treble damages against any party found to have violated its provisions. The new law also allows businesses to obtain ex parte orders in extraordinary situations that will permit seizure of misappropriated trade secret information.

From an enforcement standpoint, DTSA will provide a uniform body of federal law that can be used to enforce trade secret misappropriation claims nationwide. Employers will have one definition of trade secrets, and one set of guidelines with regard to steps necessary to designate and protect trade secret information. In addition, federal courts’ subpoena power will help prevent defendants from interfering with state law claims by avoiding service of process and discovery by relocating to a different state.

DTSA will not preempt state law actions or existing federal claims based on intellectual property protection or electronic data theft.  As with existing state laws, not all confidential business information rises to the level of a protected trade secret. Employers should continue to require non-disclosure agreements with key employees intended to protect all confidential and sensitive business information, even if it does not rise to the level of a trade secret. For trade secrets, employers must take steps to designate information as particularly proprietary, and take reasonable internal actions to prevent its misappropriation or disclosure.

DTSA will take immediate effect upon signing by the President. The new law will undoubtedly add a powerful new legal remedy for employers faced with former employees or third parties who attempt to profit by using the company’s trade secret information for their own purposes.