On May 11th, President Obama signed the federal Defend Trade Secrets Act into law. With trade secrets being among the most important IP that many businesses own, it’s vital to understand the new law's implications. The Defend Trade Secrets Act is based on state laws governing the misappropriation of trade secrets that are themselves modeled after the Uniform Trade Secrets Act. However, there are a few changes that make the Defend Trade Secrets Act unique and will require adjustment. Below are six key things in-house counsel need to know about the Defend Trade Secrets Act:
- The definition of trade secrets under the Defend Trade Secrets Act has broadened. While the exact definition of a trade secret varies from state to state, its definition under the Defend Trade Secrets Act is likely much broader than the one laid out in the law of the state law in which you are incorporated. Unlike the Uniform Trade Secrets Act, which defines eight distinct types of trade secrets that can be protected, the Defend Trade Secrets Act uses the much broader definition laid out in the Economic Espionage Act. Under this definition, “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” that have been kept secret qualify. Essentially, any secret information valuable because it is secret can be the subject of a claim under the Defend Trade Secrets Act.
- The Defend Trade Secrets Act gives companies the option of pursuing civil action in federal courts. The law brings civil actions related to the misappropriation of trade secrets under the jurisdiction of federal courts. This should reduce some of the uncertainty and delay associated with such claims at the state level.
- Companies will be able to bring a single claim under both state law and the Defend Trade Secrets Act, as it does not preempt state trade secrets laws. The Defend Trade Secrets Act leaves state laws in place, which means companies can (and most likely will) simultaneously bring a trade secret misappropriation case in both federal and state court in order to leverage the differences that may benefit that company's case. The new legislation also ensures courts keep trade secret disclosures confidential by allowing a plaintiff to file a motion under seal with the court explaining why the trade secret information should be kept confidential before any disclosure of the trade secret information is made.
- All employees must be immediately informed of whistleblower protections provided by the Defend Trade Secrets Act. All current and future employment and confidentiality agreements must be immediately amended to disclose the whistleblower immunity provisions in the Defend Trade Secrets Act protecting whistleblowers from retaliation after disclosing a trade secret to an attorney or government official. Any company that does not do so will not be eligible to recover punitive double damages or attorney fees in trade secret litigation.
- The Defend Trade Secrets Act has authorized ex parte seizures of stolen IP as a remedy for misappropriation. Trade secret owners can now seek an order to seize allegedly stolen trade secret assets in the defendant’s possession without prior notice. The exact implications of this provision are still unknown, as no other current state or federal law has comparable provisions. While some have already expressed concerns that such ex parte provisions are ripe for abuse, this option remains open to you if you are a victim — but it may remain a threat if your company is ever accused of such misdeeds. It’s impossible to know just how common such seizures will become in practice, but the case law developed by various federal courts regarding ex parte seizures will be of interest in the coming months for all in-house counsel.
- The Defend Trade Secrets Act applies to everyone. The Defend Trade Secrets Act has an unusually large reach. Not only does this law now apply to any trade relationship involving a company with American assets or ties, but it also applies in almost any transaction or relationship others have with these companies. Trade secret issues arise in hiring and firing procedures and in every NDA or contract containing a confidentiality clause. The Act can even be applied to any situation where an employee simply discusses business with others.
Now that the Defend Trade Secrets Act is law, in-house counsel will need to examine it to better understand how it may affect internal practices and future claims. The intent of the Defend Trade Secrets Act is to make a vague area of law more predictable by legislating it at the federal level. While this won’t happen immediately, hopefully this goal will ultimately be achieved.