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U S L A W www.uslaw.org FALL/WINTER 2016
The law governing the misappropria-tion of trade secrets has traditionally beenleft to the states. But, that all changed onMay 11, 2016, when the President signedthe Defend Trade Secrets Act of 2016(DTSA), a bipartisan bill that almost unan-imously passed Congress and created a newfederal civil cause of action for misappropri-ating trade secrets. This new law is expectedto usher in a new resurgence in the impor-tance of trade secrets, create a more uni-form and national approach to trade secretprotection, and open the door to federalcourthouses for trade secret owners. In general, every state recognizes thatcertain kinds of valuable information (suchas formulas, drawings, methods, techniques,and processes) that are not well-known andthat a company takes reasonable steps tokeep secret can be protected from beingtaken, disclosed, or used by others who useimproper means to learn of the information(such as by theft, bribery, espionage, or in-ducing others to breach their duty of loyaltyor confidentiality).
Forty-seven states and the District ofColumbia enacted a version of the UniformTrade Secret Act (UTSA), which was firstpublished in 1979 and later amended in1985. The UTSA came out of a desire to cre-ate uniformity among the states in light ofthe recognition of the national and inter-state realities of commerce in the UnitedStates. These efforts were extremely success-ful, and only three states to date(Massachusetts, New York and NorthCarolina) have trade secret misappropria-tion laws that are not based on the UTSA. Despite the fact that every state has itsown trade secret misappropriation laws andthat these laws are mostly based on theUTSA, there still remained a growing needfor a national law providing civil protectionsfor trade secrets. There continue to be subtleand sometimes important differences be-tween the states’ laws. For instance, there aredifferences in what information can poten-tially qualify as a trade secret, what steps arenecessary to reasonably protect a trade se-cret, and the limitations that can be placed
on former employees when they leave a com-pany. Moreover, the case law is not well-de-veloped in many states. Together, thesefactors created uncertainties and ambiguitiesfor companies that wanted to protect theirconfidential information that have not beensolved by the UTSA. It was in this contextthat Congress passed the DTSA, primarily asan amendment to the Economic EspionageAct of 1996 (18 U.S.C. § 1830 et al.).
WHAT IS THE SAME BETWEEN THEDTSA AND UTSA? Congress did not start from wholecloth when drafting the DTSA. Instead, itheavily borrowed from the UTSA and itsprovisions. As a result, there are far moresimilarities between the DTSA and UTSAthan differences. For example, the defini-tions of what constitutes misappropriationand what are improper means of obtaininga trade secret are the same. The DTSA andUTSA are also consistent in allowing reverseengineering and independent developmentas “proper means” of obtaining information
The New FederalDefend Trade Secrets
Act of 2016
Henry M. Sneath and Robert L. Wagner Picadio Sneath Miller & Norton, P.C.
U S L A W www.uslaw.org FALL/WINTER 2016
or knowledge that would otherwise be atrade secret. Both laws also provide for the samegeneral types of remedies for those whosetrade secrets have been misappropriated:injunctive relief, compensatory damages,unjust enrichment damages, reasonableroyalties, exemplary damages (up to twicethe compensatory amounts), and attorney’sfees. Finally, both laws provide for a three-year statute of limitations from when a com-pany discovered or should have discoveredthe misappropriation. Therefore, much of the DTSA will befamiliar to those who have dealt with any ofthe various UTSA-based state trade secretmisappropriation laws, and because theDTSA does not preempt state trade secretlaws, the state laws will continue to be mean-ingful even with the passage of the DTSA.
WHAT IS DIFFERENT BETWEEN THEDTSA AND THE UTSA? Despite these similarities, there are stillsome important differences between theDTSA and the UTSA. First, because theDTSA is a federal law, it requires that thetrade secret must relate to a product or serv-ice used in interstate or foreign commerce.State laws do not have this requirement,and, therefore, potentially can protect abroader range of trade secrets than theDTSA can. For many companies, this inter-state commerce requirement will not be ameaningful barrier, but there may be in-stances where it could be important, such aswhere the products and services are purelyintrastate in nature. Both the DTSA and UTSA limit whatinformation can qualify for trade secret pro-tection by requiring that the owner take rea-sonable measures to keep the informationsecret and that the information be inde-pendently valuable to the company becauseit is not well known. But, what types of in-formation can constitute trade secrets aredifferent (although it will be interesting tosee if the differences are meaningful inpractice). The UTSA limits the type of informa-tion that can potentially qualify as a tradesecret to “information, including a formula,pattern, compilation, program, device,method, technique, or process.” The DTSA,on the other hand, defines the types of in-formation that could qualify as a trade se-cret as being “all forms and types offinancial, business, scientific, technical, eco-nomic, or engineering information, includ-ing patterns, plans, compilations, programdevices, formulas, designs, prototypes,methods, techniques, processes, proce-dures, programs, or codes, whether tangible
or intangible, and whether or how stored,compiled, or memorialized physically, elec-tronically, graphically, photographically, orin writing.” The DTSA definition is obvi-ously longer and more detailed than theone found in the UTSA, but, again, it willbe interesting to see if these differences aremeaningful in practice. Regardless, the end result for both theDTSA and the UTSA is the same – only cer-tain kinds of information that a companyreasonably keeps secret and that are notgenerally well known can qualify for protec-tion as a trade secret. Another difference between the DTSAand many states’ trade secret laws involveswhether a continuing misappropriationconstitutes a single act that triggers the startof the statute of limitations period or is a se-ries of separate and distinct acts that resetsthe limitations period. Both the DTSA andthe UTSA explicitly state that continuingmisappropriations form a single claim, butnot all states adopted that portion of theUTSA, so this difference can be very mean-ingful in certain situations and can be a po-tential bar to claims under the DTSA thatwould otherwise be available under somestates’ trade secret laws.
NOTABLE PROVISIONS OF THE DTSA One of the more interesting and talked-about provisions in the DTSA is the availabil-ity of an ex parte civil seizure order from acourt in order to prevent the disseminationor propagation of a misappropriated tradesecret. Not unexpectedly, the requirementsto get an ex parte seizure order are fairlystrict. A company must show that it wouldsuffer immediate and irreparable harm ifthe order is not granted, post a significantbond, identify with particularity what is to beseized, and not publicize the seizure attemptor order, among other things. If the courtgrants the seizure order, federal law enforce-ment officers will carry out the seizure with-out the participation of the applicant andthen maintain possession of the seized itemsin a location that the applicant cannot ac-cess. The court must then hold a hearingwithin seven days of the issuance of theseizure order to determine whether to main-tain, modify, or dissolve the order. A causeof action against the applicant exists if thecourt later determines that the seizure waswrongful or excessive. The inclusion of thisseizure provision was fairly controversial,and it will be interesting to see how oftencompanies try to obtain a seizure order andhow often (and under what circumstances)courts are willing to grant one. Another important provision of theDTSA for businesses is that it provides civil
and criminal immunity to whistleblowerswho disclose trade secrets in confidence tolaw enforcement officials in order to reportsuspected violations of the law. Of particularrelevance is the requirement that all agree-ments and other contracts with employees,independent contractors, and consultantsrelating to the use of trade secrets or confi-dential information must provide notice ofthis whistleblower immunity. A companythat fails to provide this notification losesthe ability to seek exemplary damages andattorney’s fees against employees who didnot receive the notice. So, companiesshould consider modifying their confiden-tiality and employee agreements to includethe required notice provision. Finally, the protections of the DTSA ex-tend to conduct that occurs outside of theUnited States if either the offender is a U.S.citizen, permanent resident alien, or com-pany, or if an act in furtherance of the mis-appropriation occurs within the UnitedStates. This potential global reach of thestatute will give companies some additionaltools to protect their trade secrets from for-eign actors. The DTSA seems poised to usher in anew era of trade secret protection that ismore uniform, well-developed, and nationalin scope. It provides companies with an-other tool to protect their valuable intellec-tual property in this global age. For furtherinformation, see www.dtsalaw.com.
Henry Sneath is a businesstrial attorney with PicadioSneath Miller & Norton,P.C. in Pittsburgh, Pa., fo-cusing on business, intellec-tual property, insurance,energy sector, products lia-bility, and tort litigation
matters. He is listed in Pennsylvania SuperLawyers and Best Lawyers in the litigationfields of business, intellectual property, patent,personal injury defense, and legal malpracticedefense. He is a past president of DRI-The Voiceof the Defense Bar.
Robert L. Wagner is coun-sel at Picadio Sneath Miller& Norton, P.C. inPittsburgh, Pa. He focuseshis practice on patent, intel-lectual property, and com-mercial litigation matters,and is listed in
Pennsylvania Super Lawyers in intellectualproperty and intellectual property litigation. Hehas tried cases to verdict in federal court andargued before the Federal Circuit.