Posts Tagged: "DTSA"

Almost five years has passed since the enactment of the Defend Trade Secrets Act (DTSA) on May 11, 2016, which provides for civil relief for the theft of trade secrets. The most controversial provision, 18 U.S.C. § 1836(b)(2), authorizes a federal court to issue an order, in extraordinary circumstances, and upon an ex parte application based on an affidavit or verified complaint, to provide for seizure of property necessary to preserve evidence or to prevent the propagation or dissemination of the trade secret. Thus, the issuance of a seizure order is limited to “extraordinary circumstances.” According to the House Report, the “ex parte seizure provision is expected to be used in instances in which a defendant is seeking to flee the country or planning to disclose the trade secret to a third party immediately or is otherwise not amenable to the enforcement of the court’s orders.” In other words, it is intended to stop the dissemination of a trade secret, especially overseas, before its value has been lost through public disclosure. Thus, it provides a trade secret owner with the ability to mitigate the risk that trade secrets are irrevocably lost, transferred, or moved beyond the jurisdiction of the court.

Trade secret holders must take reasonable precautions to maintain the secrecy of their secrets, such as keeping such information on a “need-to-know” basis. Companies should have clear IP, confidentiality, and employment agreements describing which types of information are considered trade secrets. These agreements should also describe an employee’s responsibility for maintaining the secrecy of such information. In spite of reasonable precautions by a trade secret holder, bad actors may maliciously misappropriate trade secrets.

The Lex Machina report supports the notion that trade secret litigation has ramped up in U.S. district courts in the time since the passage of the DTSA. Between 2009 and 2016, trade secret suit filings generally remained within a range of 860 cases per year and 930 cases per year. In 2017, however, U.S. trade secret case filings saw an increase up to 1,134 cases filed. Through the first half of 2018, 581 trade secret cases have been filed, putting this year on pace to slightly exceed the number of trade secret cases filed in 2017.

Although the amount of the settlement was far less than $2.7 billion in amount sought by Waymo, the settlement apparently did include a payment from Uber of 0.34% of Uber equity—or about $244.8 million in stock based on a $72 billion valuation of Uber… Both sides had a lot riding on the outcome of the trial. In addition to the billions in damages, Waymo was seeking an injunction to prevent Uber from using any technology that may have originated from Waymo, which would have been a huge set back for Uber’s program. Indeed, during his first day of being questioned, the former CEO of Uber, Travis Kalanick, agreed that developing autonomous vehicles amounts to an “existential question” for Uber, and that the market for driverless cars is likely to be “winner-take-all.”

Waymo’s suit includes counts of infringement for each of the four patents asserted in the case. The suit also includes counts for violations of the Defend Trade Secrets Act and state claims for violations of the California Uniform Trade Secret Act. Waymo is seeking preliminary and permanent injunctions, damages for patent infringement including trebled damages for infringement of the ‘922, ‘464 and ‘273 patents and punitive damages among other forms of relief.

I am particularly concerned about the impact this case law has on the patent application process. Instead of focusing on novelty and clarity, examiners and applicants alike spend time struggling to make sense of Section 101 jurisprudence. That is a serious misallocation of the limited resources of both patent examiners and applicants, leading to longer examination times and less reliable patent grants. Delays in patent review and patent grants can interrupt a startup’s lifecycle, negatively influencing employment growth, sales, and subsequent innovation. This is just one of several factors lengthening patent examination, but it is one that may warrant a congressional response.

Earlier this year, President Obama signed into law the new federal “Defend Trade Secrets Act of 2016.” It arms with substantial new weaponry those whose trade secrets have been taken. What has been less heralded, but might just affect you more directly, are new requirements that might lead you to revise your standard confidentiality and non-disclosure agreements.

The DTSA amends the Economic Espionage Act of 1996 (“EEA”) to provide for civil remedies in federal courts for the misappropriation of trade secrets. The new Section 1836(b) provides for both equitable and monetary relief. Subsection 1836(b)(3) authorizes a federal court to grant an injunction to prevent actual or threatened misappropriation of trade secrets. The language is identical to § 2 of the Uniform Trade Secrets Act (“UTSA”). However, there are a number of limitations as to when a court may issue an injunction under the DTSA. First, the injunction may not “(I) prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows ….” Section 1836(b)(3)(A)(i)(I).

The DTSA’s provision for civil seizures provides victims of trade secret theft with a powerful remedy to prevent further dissemination of the trade secret and limit further harm. However, Congress balanced this powerful tool with severe consequences for those movants who misuse it. When seeking to use this remedy, victims of trade secret theft must be careful to comply with all the detailed requirements or they may be far worse off than before. It is a powerful weapon, but like most powerful weapons, it must be handled with great care lest it cause serious self-inflicted injury.

At present, there is no statutory penalty for not providing the required Notice. However, if an employer fails to provide the required Notice, the employer cannot recover punitive damages or attorneys’ fees under the DTSA from an employee to whom the required Notice was not provided. (The employer could nevertheless obtain such punitive damages and attorneys’ fees under state law in nearly every state.) There may also be adverse consequences from a contractual perspective, or in a government audit, if the required Notice is not provided.

The DTSA amends the definition of misappropriation from what was found in the EEA to bring the definition more in line with that of the Uniform Trade Secrets Act (UTSA) that has been adopted by almost all U.S. states. Indeed, apart of explicitly recognizing certain potential defenses that are discussed in the commentary of the UTSA, the DTSA is identical to the UTSA. According to the House Report, “The Committee intentionally used this established definition to make clear that this Act is not intended to alter the balance of current trade secret law or alter specific court decisions.” House of Representatives, Report No. 114-529, April 26, 2016, at 14. Federal courts therefore, will look to state decisions involving the state’s version of the UTSA for guidance.

Protecting intellectual property today is more challenging than ever, and the stakes are high. An open and rapid-fire exchange of information has become the norm in our digital age. Add the global nature of the market and persistent technological advancements, and it should come as no surprise that imitators stand ready to capitalize on the latest breakthroughs. As their low-cost, low-quality products flood a market, not only do they claim valuable market share, but they have potential to erode the credibility of an entire category and its leaders. Any company that produces a product must consider the prospect of knockoffs, and the potential impact imitations will have on market share and brand perceptions. Obtaining IP protection directed at mitigating knockoffs can be highly beneficial, particularly for start-ups that may have limited resources and brand awareness.

In general, the form of the information qualifying as a trade secret under the DTSA is extremely broad, and includes information of any form, regardless of “how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing,” and of any type, “financial, business, scientific, technical, economic, or engineering information,” so long as: (1) the information is actually secret, because it is neither known to, nor readily ascertainable by, another person who can obtain economic value from the disclosure or use of the information; (2) the owner has taken “reasonable measures” to maintain the secrecy; and (3) independent economic value is derived from that secrecy.[i] By comparison the UTSA identifies, by way of example, eight specific types of trade secret information; “formula, pattern compilation, program device, method, technique or process.” The DTSA, unlike the UTSA, also provides that information “stored” only in an individual’s memory can be the subject of a civil claim for theft of trade secrets.

There is now federal jurisdiction for trade secret theft. 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 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.