New Federal Law Will Provide First-Ever Civil Claim for Theft of Trade Secrets
On April 27, 2016, the U.S. House of Representatives approved the Defend Trade Secrets Act, S. 1890, by a vote of 410-2. The Senate approved an identical bill 87-0 on April 4, 2016. President Obama is expected to sign the DTSA into law in short order. Once effective, the DTSA will create a federal, civil cause of action for trade secret misappropriation for any act that “occurs on or after the date of the enactment” of the law. In addition to providing plaintiffs an opportunity to obtain injunctive relief and monetary damages, the DTSA will further allow for ex parteseizures of misappropriated trade secrets.
The DTSA borrows from the Uniform Trade Secret Act (the “UTSA”). For example, the DTSA’s misappropriation, improper means, and three-year limitations provisions are all copied from the UTSA. At the same time, the DTSA does not preempt state trade secret law or other sections of the U.S. code pertaining to trade secret misappropriation. Finally, the DTSA directs government officials to report on exterritorial trade secret misappropriation.
The DTSA’s seizure provision is a notable addition vis-à-vis the UTSA. It allows courts to issue an ex parte order to seize property as “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” To obtain such an order, a party must meet eight distinct prerequisites—including showing that a temporary restraining order is inadequate, that immediate and irreparable injury will occur if the seizure is not approved, and that the harm to the applicant outweighs the legitimate interests of any party from whom material is seized. The party seeking an ex parte seizure order must post security and is subject to a claim for any damage caused by a wrongful seizure. The raft of requirements intentionally set a high bar to issuance of an ex parte seizure order. It is a powerful tool, but also susceptible to abuse absent strict controls. The DTSA’s ex parte seizure requirements strike the right balance between need and caution.
The DTSA provides district courts with “original jurisdiction of civil actions brought under” the DTSA. The DTSA does not contain any specific venue provisions and therefore an aggrieved party must look to the general venue statute for civil actions in deciding choice of venue in a federal district court. In addition, plaintiffs may be able to bring a claim alleging a violation of Section 337 of the Tariff Act of 1930 in the U.S. International Trade Commission, depending on the circumstances. Plaintiffs deciding upon a venue in which to bring a DTSA claim should analyze differences between the DTSA and any potential state law or other federal claim.
The DTSA explicitly applies to “interstate or foreign commerce.” While the DTSA does not expand upon “foreign commerce” in any meaningful way, Section 4 of the DTSA requires various governmental officials to report on trade secret misappropriation experienced by U.S. companies that occurs abroad. In particular, one year after the DTSA is enacted, and every two years thereafter, the Attorney General, the Intellectual Property Enforcement Coordinator, and the Director of the USPTO must submit a report to the House and Senate Judiciary Committees pertaining to trade secret theft occurring abroad.
The DTSA is an important development in U.S. law, as it provides the first-ever federal law providing a private civil claim for trade secret misappropriation. The rationale for the DTSA is the belief by Congress, the Obama Administration, and stakeholders that the current patchwork of state laws is inadequate to address trade secret misappropriation and the concomitant damage it causes to trade secrets rights holders and to the U.S. economy. Time will tell whether the law achieves its intended purposes.