Overview of the Defend Trade Secrets Act

Trade secrets are an extremely valuable form of intellectual property. Because they are so closely guarded by companies, the exact value of many trade secrets will never be known. Part of every company’s intellectual property protection plan should be gaining familiarity with the various laws governing that intellectual property. One such federal law governing trade secrets that companies should be familiar with is the Defend Trade Secrets Act of 2016, 18 U.S.C. §1836, et seq. (“DTSA”).

The DTSA was signed into law by President Obama and became effective on May 11, 2016. The new law created a federal cause of action for trade secret infringement and provided for a suite of statutory remedies for trade secret misappropriation. Importantly, it provided the first single uniform cause of action for trade secret misappropriation across all states. By creating a federal cause of action, the DTSA has made it easier for litigants to establish federal jurisdiction and have their trade secret disputes resolved by the federal courts.

It has been estimated that the theft of trade secrets costs the U.S. economy between 1 and 3% of the U.S. GDP—which is between $180 billion to $540 billion annually. For many companies dedicated to maintaining the secrecy of their trade secrets, trade secret litigation has become an increasingly routine part of doing business. Unsurprisingly, trade secret litigation is more prevalent in certain industries, like technology, than in others. That does not mean though that other industries have not benefited from the passage of the DTSA.

Prior to enactment of the DTSA, civil trade secret misappropriation claims were exclusively a matter of state law. This meant that a company doing business in numerous states may have had more protection of its trade secrets in certain states than in others. The DTSA was passed with the express intent of creating a uniform body of federal trade secret misappropriation law while establishing jurisdiction for misappropriation claims in the federal courts.

To this end, the DTSA provides uniform definitions of the terms “trade secret” and “misappropriation.” A “trade secret” is defined as: “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” This definition is intentionally broad to protect a wide range of proprietary information.

Another benefit of the DTSA is the provision of various statutory damages and remedies. Section 1836(b)(3)(B) of the DTSA permits a successful party to obtain injunctive relief, monetary damages, and attorney’s fees. Section 1836(b)(3)(A)(i) permits an award of injunctive relief to prevent any actual or threatened misappropriation. However, injunctive relief may only be issued “based on evidence of threatened misappropriation and not merely on the information the person knows.” The reason for this is that injunctive relief under the DTSA is not meant to create a remedy for inevitable disclosure claims and or “prevent a person from entering into an employment relationship.”

One of the most anticipated provisions of the DTSA was the creation of a seizure mechanism that may be employed, much like a preliminary injunction, prior to a formal finding of misappropriation. Under this mechanism a trade secret owner may file an ex parte application asking the court to “issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” A seizure order allows a company to prevent further use and dissemination of its trade secrets while the DTSA claims are being litigated. The DTSA provides that seizure orders may be issues only in “extraordinary circumstances” and must be followed by a seizure hearing where the party who obtained the seizure order has the burden of proof in establishing the facts underlying the order.

Legal liability for misappropriation and protection from it is an ever-evolving, highly fact-specific area of law. Trade secret attorneys for people accused of misappropriation, and attorneys for the commercial enterprises who need protection from misappropriation of trade secrets, must have extensive knowledge of federal and state trade secret law to defend or advance the rights of our clients. The trade secret attorneys at DiTommaso Lubin have over thirty years of experience defending and prosecuting trade secret misappropriation and restrictive covenant lawsuits and have cutting edge experience that has evolved with this ever-developing legal field. Our trade secret attorneys are committed to protecting our clients’ personal or commercial interests. Located in Chicago and Elmhurst, Illinois, we have won judgments or settlements for our clients in disputes or suits throughout the Chicago area. To arrange for a consultation with one of our attorneys, contact us online or call at our toll free number at 630-333-0333.