House Passes The Defend Trade Secrets Act of 2016; Set to Become Law

On April 27, 2016, the U.S. House of Representatives passed The Defend Trade Secrets Act of 2016 (DTSA or Act) 1 which will create a federal civil remedy for stealing trade secrets, such as manufacturing processes and computer software. The Senate previously approved the measure which will now go to President Obama for signing into law.

According to a 2013 report by the Commission on the Theft of American Intellectual Property, intellectual property theft, including trade secrets, is estimated to cost American firms more than $300 billion a year. 2

The Defend Trade Secrets Act amends the Economic Espionage Act of 1996 to create a federal civil remedy, including money damages, resulting from trade secret theft.

While trade secret theft has been a federal crime, companies have previously had to seek remedies in state courts navigating a variety of state laws.

By authorizing private civil suits in federal court for illicitly obtaining and/or using proprietary intellectual property, such as industrial designs, business strategies, and customer lists, the new law’s goal is to create a uniform, national standard (based on federal court decisions) for what constitutes trade secret theft.

One of Congress’ goals was to align the DTSA with the state Uniform Trade Secrets Act, a version of which has been adopted by all states except for New York and Massachusetts. The DTSA does not preempt state laws already addressing trade secrets protection – both federal and state laws will co-exist.

Impact on Confidentiality Agreements

The DTSA provides criminal and civil immunity for employees and contractors who disclose trade secrets to their attorneys and the government in connection with investigations, retaliation litigation alleging law violations, and litigation generally if the proprietary information is filed under seal.

Employers and contractors who fail to provide notice of the immunity (e.g., in a handbook; cross-reference in confidentiality agreements) waive the right to recover punitive damages and attorney fees in any ensuing litigation.

Ex Parte Seizures

Under the new law, courts may issue ex parte civil seizure orders of property if an employer or contractor can demonstrate that the order is required to prevent a trade secret from being destroyed, moved, hidden or otherwise made inaccessible to the court. The Act requires a bond be posted, provides for an expedited adversarial hearing, and allows parties subject to the seizure order to seek damages. These provisions, certain to be controversial, are not found in state law.