American business likely to benefit from greater protection for trade secrets

By Terrence A. Oved
April 14, 2016

businessman-lockLast week, the United States Senate passed the Defend Trade Secrets Act of 2016 (the “DTSA”). If passed by the House of Representatives and signed by the President, the DTSA would for the first time grant owners of trade secrets a private right of action in federal court for the theft and misappropriation of trade secrets. While theft of trade secrets has been a federal crime since 1996, the United States has never enacted legislation granting to owners of trade secrets the right to commence civil actions in federal courts. Although trade secret owners have not gone entirely without civil remedies, as nearly all 50 states have enacted the Uniform Trade Secrets Act of 1979 (UTSA), the DTSA improves on existing state law in significant respects. First, the DTSA expands the universe of available remedies by providing for ex parte seizure orders that direct U.S. law enforcement officials to seize stolen or misappropriated assets. Second, under its expansive injunctive relief provision, the DTSA includes important mechanisms for preventing anti-competitive activity in the labor market. Third, although an initial period of relative uncertainty may ensue as the federal judiciary takes time to develop jurisprudence interpreting the DTSA, a national standard should guarantee greater predictability of legal outcomes. Thus the DTSA should ultimately benefit U.S. businesses. Accordingly, businesses would do well to familiarize themselves with key aspects of the DTSA, including how it differs from the UTSA.

Unlike the UTSA, the DTSA allows complainants to seek an ex parte order of seizure under “extraordinary circumstances.” The bill does not define “extraordinary circumstances,” although it does provide that ex parte seizures are unavailable where a temporary restraining order or other equitable relief would be sufficient to prevent damages, thus offering a clue as to where federal judges might begin when interpreting the meaning of this term. The DTSA seizure provisions also require that the alleged wrongdoer be in “actual” possession of the assets to be seized (i.e., the assets containing the trade secret, such as hard drives or paper documents). If the DTSA becomes law, the ability to obtain an ex parte seizure order would provide business owners with a new and valuable weapon against costly trade secret theft and misappropriation.

Where an ex parte order is unavailable under the DTSA, complainants may still seek injunctive relief. However, unlike the UTSA, which also offers injunctive relief, the DTSA includes language providing that an injunction is improper and not issuable if it: (1) prevents a person from entering into an employment relationship, or if conditions placed on employment are not supported by evidence of threatened misappropriation, or (2) otherwise conflicts with an applicable state law prohibiting restraints on the practice of a lawful profession, trade, or business. The Senate added these safeguards to quell fears that employers might abuse injunctions as a means for doing a run around local laws limiting the scope of restrictive covenants in employment contracts, thus inhibiting the free flow of labor. Another substantial difference distinguishing the DTSA from the UTSA—one which is very favorable to trade secret owners—is that DTSA injunctions lack any apparent time limitations. An injunction issued under the UTSA terminates once the trade secret has ceased to exist or any commercial advantage has subsided: the DTSA does not provide any similar limitation on the duration of the injunction. In sum, the DTSA language improves upon the UTSA by enhancing the ability of business owners to benefit from injunctive relief while ensuring that employees are not unduly harmed.

Notwithstanding the benefits the DTSA as describe above, there is at least one substantial downside to enactment. If the DTSA becomes law, it may render the potential outcome of future trade secret disputes more unpredictable. Crucially, the DTSA does not preempt either the UTSA or other local trade secret jurisprudence. The federal courts will thus need to contend with a host of local legal regimes governing everything from confidentiality agreements to rights of ownership. Consequently, it could take many years for the federal judiciary to develop its own trade secret jurisprudence, especially because federal courts will need to square federal law with local state law. In the meantime, businesses seeking to develop valuable information and resources protectable as trade secrets risk consignment to the legal purgatory of uncertainty. However, while the DTSA may create greater uncertainty for businesses confronted with somewhat uncharted jurisprudential territory, the overall benefits of having a nationally unified regime for trade secret protection should, in time, hopefully outweigh the initial “startup” costs.

Ultimately, American business would likely benefit from the unity, predictability, and greater protection that enactment of the DTSA would ensure. Additionally, in a highly globalized economy in which businesses face greater threats of intellectual property misappropriation overseas, states simply do not have adequate resources to pursue wrongdoers. Also, jurisdictional issues that arise in state actions may be eliminated or mitigated by having relief made available at the federal level, as out-of-state complainants could avoid local jurisdictions hostile to trade secret litigation by pursuing their claims in federal court. Ultimately, with enactment of the DTSA being almost certain, employers and legal practitioners would do well to understand its key provisions and the changes to the legal landscape that it will bring about.

The Author

Terrence A. Oved

Terrence A. Oved is Managing Partner of the New York City based boutique law firm, Oved & Oved LLP, which concentrates its practice in Commercial Litigation, Intellectual Property, Real Estate and Corporate Law. For more information or contact Mr. Oved please see his firm bio page.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 17 Comments comments.

  1. angry dude April 14, 2016 9:09 pm

    Well..

    Do you want to promote the progress of humanity by publicly disclosing important know-how
    OR you want to bring us back to dark ages by hiding everything ?
    Time to decide, folks

  2. Stephan Curry April 14, 2016 9:26 pm

    good thing The Honorable Kappos is somewhat changing his tune.

    He did not Vigorously defend the American World Class Patent System when our US patent system got attacked by some Bay Area patent folks on August 1, 2007 @Stanford University summit

    http://www.ip-watch.org/2015/09/01/former-uspto-director-kappos-inventors-giving-up-on-patent-system-after-200-years/

  3. Anon April 15, 2016 10:04 am

    Re-read the article by Kappos – it very much is a defense of strong patents and a strong patent system.

  4. Anon April 15, 2016 10:05 am

    Post caught in filter – please release and remove this note.

    Thanks

  5. Stephan Curry April 15, 2016 10:24 am

    Anon@3
    Like what I said Anon, Kappos’ article is for a strong patent system. I did not say otherwise.

    Anon: you know D Hayes was in this panel of Stanford Open Summit August 1, 2007 when they claimed the patent system is in crisis and Kappos did not vigorously defend the US patent system against these claims (Google it, Anon. I don’t want to play your game). Don’t get defensive again, DUDE. I hate what these people talking at Stanford Open Summit 2007 did to the world class USA patent system. Giles Rich got most of patent law correct, when he wrote the patent act. it is just, some girl or woman decided she is Smarter than Giles Rich.

    He (Kappos) did not Vigorously defend the American World Class Patent System when our US patent system got attacked by some Bay Area patent folks on August 1, 2007 @Stanford University summit. Google it, Anon. you will see the culprits.

  6. Stephan Curry April 15, 2016 10:43 am

    The Honorable Kappos did not call it complicated at all on what needs fixing.
    good thing he and Rick Lloyd seem to follow IPwatchdog to attempt to discover the Pretenders.
    The moral is, “A little knowledge (or patents) is a dangerous thing”
    http://www.iam-media.com/blog/Detail.aspx?g=bf931c59-698b-4114-8b87-31a1ceb226c9

    A little learning is a dangerous thing;
    drink deep, or taste not the Pierian spring:
    there shallow draughts intoxicate the brain,
    and drinking largely sobers us again.

  7. Anon April 15, 2016 3:07 pm

    Thanks Mr, Curry, I may have misunderstood your position (the title of the article implies an anti-Kappos view that he did not do something) – and think that we are aligned on the larger concept of the importance of a strong patent system.

    I commented merely to point out that Mr. Kappos has indeed not provided any “change of tune,” “waffling,” or other view other than that a strong patent system is in the best interests of this country. The unfortunate title appears to not be of your doing.

  8. angry dude April 15, 2016 10:34 pm

    Why argue meaningless topics ?

    David Kappos understands perfectly well how US Patent System is supposed to work and why it doesn’t work

    He may or may not have his own personal agendas

    The subject of this discussion is much bigger- the survival of this country called USA on Earth

  9. Stephan Curry April 16, 2016 12:28 am

    angry dude@8
    David Kappos understands perfectly well how US Patent System is supposed to work and why it doesn’t work

    Sir, you are preaching to the choir, so no disagreements here.
    I think a suspected atheist or agnostic put the survival of this great country USA to a test by diligently driving the messing up of our American patent system by talking and talking and trying to move patent litigations away from the district courts, but that person will Not win.

  10. Anon April 16, 2016 11:15 am

    Mr. Curry,

    I do not know this single person to which you allude to.

    In my mind, this is not the result of driving by any single one person.

    Instead, what we see here (and greatly amplified by Citizen’s United) is the collective “voices” of the juristic person that is the Corporation at work, and especially the desires of the international large scale corporations that – while they can still compete with patents – have at their own ulterior benefit, the desire to compete on non-patent grounds.

    To such entities, innovation and especially disruptive innovation, is merely a classic business risk that is sought to be minimized, and there is NO factoring into their equations the long term negative effects of a weaker patent system. It simply does not matter to their bottom line if other people come up with innovation for innovation’s or “progress’s” sake.

    This is the classic “Right Wing” attack on patents that are other people’s property.

    Combine this with the classic “Left Wing” attack on patents as being ANY individual’s personal property, and you can begin to see what those advocating the middle ground of strong personal property rights are faced with. Note that I add this last thought not in regards to anything that you personally have posted, but merely to remind all that there is not just one “enemy” out there. It is not just a single person, and it is not even just a single philosophy that is active in denigrating the patent system. We cannot kid ourselves as to the seriousness and depth of attacks.

  11. Stephan Curry April 16, 2016 12:40 pm

    anon@10
    Combine this with the classic “Left Wing” attack on patents as being ANY individual’s personal property, and you can begin to see what those advocating the middle ground of strong personal property rights are faced with. Note that I add this last thought not in regards to anything that you personally have posted, but merely to remind all that there is not just one “enemy” out there. It is not just a single person, and it is not even just a single philosophy that is active in denigrating the patent system. We cannot kid ourselves as to the seriousness and depth of attacks.

    Anon, this is not a politics board. Anyway a Stalinist patent system will always fail. you know that, Anon.

    anyway, you know that strong patents makes people do design-arounds which is one of system we have in place to encourage innovation. weakening patents and invalidating them in the USPTO just messed up our patent system and are hurting certain industries. Giles Rich got most of it correct when he cowrote the 1952 patent act (anyway, I am buddies with a former law clerk of Judge Rich but I still think I am not biased).
    you know that patent validity should not decided by an administrative body or else hell will break lose like now (and it looks like The Honorable Kappos has pushed the panic button with his talk this week in DC).

    Anon, you are a smart guy. you know you can do your own due diligence detective work in the silicon valley and read speeches and writings of individuals from now till circa 2003 and you can come to conclusions and you will discover folks who pulled the wool over other people’s eyes into weakening our patent system. even experience patent attorneys in the drug industry and biotech industry got convinced the IPRs and AIA are good things (why Phil Magic Johnson did not put up a stronger fight against IPRs is curious unless he was just too busy). why did we let Larry Googlepage have his way? that is unacceptable.

  12. Night Writer April 16, 2016 10:55 pm

    @1 is correct. Also, the tech employees are going to learn the power of Google soon. They are going to end up getting locked into one job for life or until Google is finished with them.

  13. Stephan Curry April 17, 2016 1:56 am

    there are lots of stuff floating around. people need to be honest.

    https://politicalhitjobs.wordpress.com/2016/04/06/does-googles-michelle-lee-work-for-both-google-and-the-u-s-patent-office-at-the-same-time/

  14. angry dude April 17, 2016 11:09 am

    Night Writer@12

    A friend of mine – PhD in theoretical physics and very capable software engineer applied for Google job a few years back
    He didn’t get the job because he was “too old” (early 40s)

    We are entering the new stage of transnational capitalism where corporations hire “the expendables” and then let them go (or shoot them dead) when they no longer need them…

  15. nat scientist April 17, 2016 9:48 pm

    @12
    Humans as replaceable gas tanks was the M.O, of the finance industry, spot-on Morgan Stanley and Goldman Sachs, since the late Eighties of the 20th Century. Now if there was a whiff of sociopathic behavior, there was a future
    all carved out of the arbitrage void.

  16. Night Writer April 18, 2016 10:25 am

    @14 and @15: What is missing from the trade secret bill is an analysis of how it can be used to bind employees. Just ridiculous that this would not be done.

    (Also, a friend of mine that is a programmer from Russia wanted to return to Russia for family reasons, but they do not hire programmers after age 30 in Russia.) The scary thing is the more the corporations wrap everything under their umbrella the more your worth is defined but what the corporations think it is.

  17. Night Writer April 18, 2016 10:27 am

    @13. I wonder if Lee is getting advice from Google’s counsel on how to burn down the patent system. I think she is. My guess is that she is doing the type of thing that Obama does. We are probably going to see lots of patent judges that are very anti-patent hired (if they ever hire more) and anything else she can do. I am too busy to figure it out, but I would bet there are lots of things she is doing that are under the radar of the popular press.
    We will see if she leaves and takes a lump sum for her service from Google or if Google finds some way to reward her.