The Defend Trade Secrets Act of 2016 Creates Federal Jurisdiction for Trade Secret Litigation

There is now federal jurisdiction for trade secret theft. The Defend Trade Secrets Act of 2016 was signed into law on May 11, 2016 after being unanimously passed in the Senate and ratified in the House by a vote of 410-2. The DTSA became immediately effective for all misappropriation occurring after the bill’s enactment.

The DTSA creates a federal cause of action for trade secret misappropriation that largely mirrors the current state of the law under the Uniform Trade Secrets Act, which has been adopted by 48 states. The DTSA uses a similar definition of trade secrets, and a three-year statute of limitations, and it authorizes remedies similar to those found in current state laws. The DTSA also creates an ex parte seizure procedure for use in extraordinary circumstances where the party against whom the seizure is ordered “would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person….” While the seizure may be carried out immediately, the new law provides that the court shall set a hearing not less than seven days after the issuance of the order. Finally, the law protects whistleblowers from retaliatory accusations of trade secret misappropriation, so long as the whistleblowers disclose trade secret information to government or court officials in confidence.

The DTSA will not preempt existing state law, which will preserve and afford plaintiffs’ options in regards to whether to file federal or state claims and which court to select. It also notably omits any requirement that a trade secret plaintiff describe its trade secrets with particularity, which several states, including California, currently require. Significantly, the DTSA also prohibits injunctive relief based on the inevitable disclosure doctrine, which is consistent with California law and thus should not detrimentally impact employee mobility.

You and your company should consider four responses to the DTSA:

First, update your employment and confidentiality agreements to disclose the whistleblower immunity provisions in the DTSA. If you do not, your company is not eligible to recover double damages or attorney fees in trade secret litigation.

Second, reevaluate your company’s tolerance for bringing trade secrets claims. Many companies have been deterred from making claims in the past because of the uncertainties and delays in state courts. Federal courts, however, have smaller case loads, allowing them to more directly and efficiently manage such litigation.

Third, inventory your company’s trade secrets and evaluate the protections in place to maintain the confidentiality of those secrets. Preventative measures are far more effective, and less costly, at keeping your secrets safe than methods designed to try to stuff the proverbial genie back in the bottle.

Fourth, develop response plans for suspected misappropriation and for receiving a seizure order. Trade secret litigation usually moves very quickly. Having a plan for what to do in the event your secrets are stolen will prevent unnecessary delays that can compromise your rights. In addition, if you are in a very competitive space with fluid employee mobility, consider formalizing a seizure preparedness and response plan. Such a plan should aim to minimize the business disruption associated with seizure and to facilitate your lawyers’ immediate response in moving for a dissolution of the seizure order and a finding of wrongful seizure.

The primary effect of the DTSA is to federalize trade secret misappropriation actions and ensure full access to the federal courts for trade secret litigants. Courts are likely to interpret provisions of the DTSA to be consistent with existing state law – but by federalizing trade secret law, Congress has paved the way for greater predictability in an area of law that has been subject to the patchwork law of 50 states.