May 16, 2016

How the Defend Trade Secrets Act Helps Businesses

On May 11, President Obama signed into law the Defend Trade Secrets Act (DTSA). The DTSA provides companies with a federal cause of action to enforce their trade secret rights. The legislation passed with major bipartisan support—even at a time of significant partisan warfare in Congress—signaling how important the protection of U.S. confidential information is to the American economy.

Prior it to its passage, trade secrets were governed by state law, which led to a level of inconsistency in how trade secret rights were protected and enforced depending on the state statute at issue. Additionally, companies that chose to go to court to fight for their stolen trade secrets were often limited to suing in state court, unless they met the requirements for federal diversity jurisdiction, or were able to allege other claims that were federal causes of action.

Now, with the enactment of a federal, standardized claim, trade secret owners are able to bring their claim in federal court, as well as pursue ex parte relief that will enable the federal judiciary to cross state lines and quickly address urgent situations.

Below are four critical points to understand about how the DTSA may impact future claims for trade secret misappropriation.

1) One Rulebook: Federal Cause of Action

The DTSA provides trade secret owners and defendants touching multiple states with a common rulebook, or a “federal cause of action.” The ability to bring suit that quickly reaches across state lines is expected to make interstate trade secret disputes more efficient, nullifying the need to attempt to enforce one’s state’s rulings in a foreign jurisdiction. Under the DTSA, trade secret law should become more consistent from state to state over time.

2) Thieves Will Not Get Advance Notice of Court Action

When given plenty of warning, some trade secret thieves can easily disseminate or hide information, or leave the country with it. One of the most significant features of the DTSA is that trade secret holders have the right to request that courts may issue an order allowing law enforcement to seize stolen trade secrets without notifying the culprit. This is called an ex parte seizure order.

Critics of the ex parte seizure provision feared that it might infringe on the rights and legitimate business operations of the accused. Today, the DTSA contains safeguards to ensure rights of all parties are protected. The trade secret owner must not only establish the standards necessary to obtain a standard civil injunction; they must also show specific evidence that a normal civil injunction would be inadequate.

3) Ex-Employees’ Rights to Mobility are Preserved

While the DTSA gives courts the authority to enter injunctions to prevent actual or threatened trade secret theft in addition to monetary damages, it comes with significant limitations on those powers that might impede an employee’s ability to pursue a chosen career.

An injunction under the DTSA may limit the type of work someone with knowledge of trade secrets can perform, but only if evidence of threatened misappropriation can be proven. The DTSA also requires employers to notify their employees of their mobility rights as established by the act.

4) Trade Secret Owners Can Choose Between State and Federal Law

Trade secret owners may seek relief under the new federal standard or under their state’s pre-existing law. This legislative compromise offers a wider swath of protections and allows companies to use the laws that give their information the highest degree of protection in each circumstance.

The DTSA takes effect immediately, and applies to any misappropriation occurring on or after May 11, 2016.

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