By Dan Jaffe on June 9, 2017

Manufacturers and sellers of products can use the Defend Trade Secrets Act (“DTSA”) to effectively protect their trade secrets. The DTSA was enacted on May 11, 2016, extending the Economic Espionage Act of 1996 (18 U.S.C. §§ 1831, et seq.). DTSA creates a federal civil cause of action for trade secret misappropriation whereby “[a]n owner of a trade secret that is misappropriated may bring a civil action . . . if the trade secret is related to a product or service used in or intended for use in, interstate or foreign commerce.”

Before enactment of DTSA, in the absence of diversity jurisdiction or an independent federal cause of action trade secret misappropriation claims had to be brought in State court. While all states except New York and Massachusetts adopted the Uniform Trade Secrets Act, State interpretations of the Uniform Act varied widely (e.g., different trade secret definitions, different statutes of limitation and different remedies), causing difficulties in enforcing injunctive and other relief across State lines. DTSA’s provisions mirror those of the Uniform Act and promote uniformity in enforcing, protecting and valuing trade secrets.  Although this does not preempt State trade secret laws, it allows trade secret owners to sue in federal court in conjunction with State causes of action for trade secret misappropriation. DTSA therefore adds an important tool for trade secret owners, especially for those who do business nationally or internationally.

DTSA provides comprehensive definitions of “trade secret” and “misappropriation” which are cornerstones of the uniformity needed to adequately protect trade secrets across State lines. It also provides a civil property seizure remedy to prevent the propagation or dissemination of a trade secret prior to a formal finding of misappropriation, whereby a court on an ex parte application meeting certain stringent requirements can issue an order of seizure. Subsequent to the seizure order an evidentiary hearing must be held to prove the facts necessary to support the seizure. Injunctive relief and money damages, including exemplary damages and attorney’s fees, are also available under DTSA, providing that requirements for injunctive relief are met and adequate notice whistleblower immunity is provided to employees/agents of trade secret owner. Both State and federal causes of action can be joined in asserting trade secret misappropriation claims.

Firms should note that DTSA also provides for whistleblower immunity shielding employees from criminal or civil liability under federal or state trade secret law for disclosing a trade secret that in confidence to an attorney or governmental official “solely for the purpose of reporting or investigating a suspected violation of law,” or in filing a related lawsuit made under seal. Employers must notify their employees of DTSA whistleblower immunity provisions in their policy manuals and employment contracts in order to be eligible to collect punitive damages and attorney’s fees remedies under DTSA.

To take advantage of DTSA and comply with its requirements trade secret owners should (1) update and revise employment agreements and policy manuals with the required notice of DTSA whistleblower immunity provisions; (2) audit and identify trade secrets, identifying confidential information that is clearly valuable and not known except to authorized parties; (3) utilizing both State and federal causes of action in pursuing trade secret claims; and (4) take proper precautions to protect the confidentiality of trade secrets.

Protecting confidential commercial trade secrets can be a challenge. The DTSA provides a valuable legal resource in doing so.