The Federal Defend Trade Secrets Act, Another Weapon Aimed at Protecting Your Company’s Secret Sauce

The U.S. House of Representatives recently voted 410-2 on to pass the Defend Trade Secrets Act (DTSA) that would federalize trade secrets law. The bill already passed the Senate last month so the next step is sending the bill to the White House to President Obama signature, which he is expected to sign. The DTSA allows companies for the first time to file civil lawsuits for trade secrets theft under the federal Economic Espionage Act. Currently, the Espionage Act only provides for prosecution of criminal trade secrets theft. Private civil suits must be filed under available state law.  

Unlike patents, copyrights and trademarks, trade secrets are governed exclusively by state law, and those laws will vary dramatically from state to state depending on whether the state has adopted the Uniform Trade Secrets Act. The primary intent of the DTSA is to create a consistent federal statutory approach, allowing for the development of more predictable, nationwide case law. It would also give litigants easier access to federal courts, which are arguably better equipped than state courts to handle cross-state and international cases, as well as complex technological issues.

Michelle K. Lee, Under Secretary of Commerce for Intellectual Property, stated that “innovators, manufacturers, and entrepreneurs of all sizes will benefit greatly from access to federal courts — providing a more uniform way to take action and stronger tools to prevent the transit of trade secrets out of the country.”

Since the earliest iteration of DTSA was introduced in 2012, its most controversial aspect has been a provision allowing courts to issue ex parte seizure orders to prevent the dissemination of a trade secret — a harsh remedy that may be unavailable under state law. However, litigations must show “extraordinary circumstances” in order to obtain this relief. And, in the event the ex parte order is issued wrongfully, the party seeking such relief may be required to pay any damages incurred by the Defendant.  

The DTSA includes sections that prevent injunctions aimed at unfairly limiting employee mobility, and even contains a whistleblower provision that protects employees from disclosing trade secrets in the course of reporting criminal behavior. Notably, the bill would not preempt the state laws already on the books, e.g., the Utah Uniform Trade Secrets Act. Unlike copyrights and patents that are explicitly mentioned in the U.S. Constitution, federal trade secret law draws its authority from the Commerce Clause; like trademark law’s federal Lanham Act, the DTSA will co-exist with state-level trade secrets law.

The bill drew support from huge companies like Microsoft Corp., GE, and DuPont Co., as well as powerful lobbying groups like the US Chamber of Commerce.  

The bill already passed the Senate last month so the next step is sending the bill to the to President Obama for his signature. 

Clyde Snow’s Employment Law Group brings extensive experience in representing and counseling local and national businesses in all aspects of employment and workplace law.