Protecting Client Trade Secrets: The Defend Trade Secrets Act of 2016, Part 1

Feb 9, 2017 9:29:43 AM

Learn more about how the Defend Trade Secrets Act of 2016 affects you and your clients.

Aggrieved parties have long been able to sue in federal court for copyright, patent, and trademark violations. Surprisingly, no corresponding private cause of action has existed for trade secret theft. Instead, trade secret cases were the domain of state courts.The enactment of the Defend Trade Secrets Act of 2016 changed this. Signed into law on May 11, 2016, the Act gives federal courts jurisdiction over trade secret cases and allows individuals to bring a private cause of action in federal court.

This three-part blog post begins with a background of trade secret law. Part 2 introduces key provisions of the new Act. Part 3 continues discussion of the Act and includes drafting considerations to ensure that new business documents contain the language required. Attorneys should be informed of the changes brought by this Act in order to protect client interests in this area.

Learn how to efficiently draft Employee and Independent Contractor Agreements that protect your trade secrets.

Trade Secret Law: The Basics

A trade secret is information not generally known or reasonably ascertainable by others and which a business wants to keep secret to obtain an economic advantage over competitors or customers. A trade secret could include a formula, pattern, compilation, program, device, method, technique, or process. Trade secret law is often thought of as a fourth form of intellectual property protection similar to patent, trademark, and copyright law.

Prior to the Act, the Uniform Trade Secrets Act protected trade secrets in most states. UTSA was promulgated in 1978 and amended in 1985. It provided uniform protection of trade secrets across the adopting states. UTSA has been adopted in all states except New York and Massachusetts, where trade secrets are protected by common law.

Trade secrets were also protected by criminal law, both at the state and federal level. At the federal level, protection was provided through the Economic Espionage Act of 1996, which provides federal criminal penalties for trade secret theft. The Espionage Act creates two different offenses:

  • Trade Secret Theft: using a trade secret to economically benefit anyone other than the owner, with the knowledge or intent that the use will injure the owner of the trade secret.
  • Foreign Economic Espionage: misappropriation of a trade secret with intent to benefit a foreign government, foreign instrumentality, or foreign agencies.

The Espionage Act created criminal penalties, but no civil remedies. In almost 20 years, there were only around 300 defendants charged with violations of the Espionage Act, and a significant portion of these involved co-defendants on a single case.

These previous laws were enacted mostly in a pre-Internet world and did not recognize how easy it would be to disseminate a protected trade secret to millions of people. And although many states had adopted UTSA, they did not do so uniformly. 

Proponents of the new Defend Trade Secrets Act believed that the patchwork of U. S. trade secret protection laws were inadequate to provide a sufficient remedy for companies whose trade secrets were stolen or misappropriated.

The next post explores the details of the 2016 Act, which modeled its definition of trade secret on UTSA, but includes a more expansive list of the information protected under it.

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