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New Law Creates Federal Trade Secrets Cause of Action

New Law Creates Federal Trade Secrets Cause of Action

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (DTSA), which provides a federal cause of action for trade secret misappropriation. Prior to the DTSA, plaintiffs seeking to enforce trade secrets rights relied exclusively on state law; most states have adopted the Uniform Trade Secrets Act (UTSA).

With limited exceptions, the rights granted under the DTSA are the same as under the UTSA. The basis for liability is the same. The damages are the same. Both the UTSA and the DTSA permits the recovery of enhanced double damages and attorneys’ fees for willful misappropriation of trade secrets.

One difference is that the DTSA provides immunity to whistleblowers who disclose trade secrets to law enforcement officials, or to an attorney, for the sole purpose of reporting or investigating a suspected violation of law. The DTSA provides immunity to parties who disclose a trade secret in a lawsuit, if the disclosure is made in a filing made under seal. The DTSA also requires employers to provide notice of this immunity in a contract or agreement with an employee that governs the use of trade secrets. Employers who fail to provide such notice are barred from recovering enhanced damages and attorneys’ fees.

Note to practitioners: employers who are concerned about the potential for trade secret misappropriation will want to update their policy manuals, employment contracts, or other employment materials to give the notice required by the DTSA if they want to take advantage of the possibilities for recovering enhanced damages and attorneys’ fees.

Another difference is that the DTSA forecloses the possibility of injunctive relief based on the inevitable disclosure doctrine. The DTSA requires evidence of threatened misappropriation before an injunction will issue. This differs from the law in many states, which authorize injunctive relief where use or disclosure of trade secrets is inevitable even if not yet proved.

Unlike the UTSA, the DTSA provides for ex parte civil seizure in extraordinary circumstances. Courts can issue seizure orders where the party against whom the seizure would be ordered misappropriated or conspired to misappropriate the trade secret at issue and is in possession of the trade secret. Such orders are appropriate where an injunction is insufficient because the party against whom the injunction order would be issued would not comply with the order.

The Bottom Line—Trade Secret Plaintiffs Can go to Federal Court if They Want

The differences between the DTSA and the UTSA will only matter in rare cases, with one exception: the right to bring suit in federal court. The DTSA ensures that every plaintiff who wants to bring a trade secrets claim in federal court can do so. But if there is no other basis for federal court jurisdiction (such as diversity of citizenship), a plaintiff can file in state court and avoid removal to federal court simply by pleading a state law trade secrets claim without reliance on the DTSA. This option to proceed in federal court now provides an important advantage for plaintiffs in trade secrets cases.