Proposed Federal Defend Trade Secrets Act of 2016

Historically in the U.S., trade secrets have generally been protected by state law under each state’s version of the Uniform Trade Secrets Act (UTSA). The UTSA was published in 1979 in an effort to provide a unified legal framework for protecting trade secrets.

A trade secret is a non-public or confidential information which is protected by law. As commonly defined, a trade secret is: (1) information; (2) which reasonable measures have been taken to protect; and (3) which derives independent economic value from not being generally known. Examples of trade secrets include: formulas, designs, computer software, customer lists, non-public financial information, cost and pricing data, and manufacturing processes.

In the absence of a general purpose federal trade secrets law (whose benefits over states’ UTSAs has been vigorously debated), there are no civil remedies at the federal level.

On January 27, 2016, following unsuccessful attempts to pass federal trade secret legislation in 2014 and 2015, the U.S. Senate Judiciary Committee passed the Defend Trade Secrets Act of 2016 (S.1890)(“DTSA”). The legislation is supported by a range of firms from startups to tech giants concerned about billions in annual losses from trade secret theft and is more broadly supported by legal scholars than its 2014 and 2015 versions were.

As did its 2015 predecessor, the 2016 DTSA Bill would authorize a private civil action in federal court for the misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce. The proposed legislation:  (1) creates a uniform standard for trade secret misappropriation by expanding the Economic Espionage Act; (2) provides for injunctive relief and monetary damages to preserve evidence, prevent disclosure, and account for economic harm to companies; and (3) creates remedies for trade secret misappropriation similar to those in place for other forms of intellectual property.

The 2016 version of the DTSA seeks to address previous concerns about the bill, including:

  • With respect to ex parte civil seizure, the remedy is now available “only in extraordinary circumstances;”
  • Restrictions on employee mobility are lessened and any injunction must “be based upon evidence of threatened misappropriation and not merely on the information a person knows;”
  • Federal preemption of state UTSA law is more clearly limited and an injunction cannot “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business;”
  • Punitive damages are limited to double rather than treble damages;
  • The Statute of limitations is expanded from three to five years; and

Whistleblower protections have been added in an attempt to protect individuals who have disclosed trade secrets to the government or in the context of retaliation lawsuits

The Senate Judiciary Committee unanimously approved the 2016 DTSA bill with its new amendments. amended. We will track the progress of the DTSA in Congress and provide updates on the status of the legislation.