The enactment of the Defend Trade Secrets Act of 2016 expanded the available courses of action for aggrieved parties to protect their trade secrets. 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.
Our first installment of this three-part post introduced the basic ideas behind trade secret law. This second post examines 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.
The Defend Trade Secrets Act of 2016
The Act set out a more expansive definition and list of trade secrets, established what misappropriation of secrets involves, created means of federal civil action to protect such secrets, and authorized federal seizure of secrets for their protection.
In terms of what constitutes a trade secret, the Act’s list includes:
[A]ll forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.
Misappropriation:
The Act applies misappropriation to both acquisition and disclosure of the trade secret. Acquisition of a trade secret is misappropriation if the acquirer knows or has reason to know that the trade secret was acquired by improper means.
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Disclosure or use of a trade secret without consent is also misappropriation in three circumstances:
- The person disclosing the trade secret used improper means to acquire the trade secret.
- At the time of the disclosure, the person disclosing the trade secret knows or has reason to know that the trade secret was acquired through improper means or who had a duty because of the circumstances to maintain its secrecy.
- Before the person changed position, the person knew or had reason to know that the secret was a trade secret and that the trade secret had been acquired by accident or mistake.
The first two of these circumstances involve improper means, a term that is also defined in the Act by way of illustration:
Improper means includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Improper means does not include reverse engineering, independent derivation, or any other lawful means of acquisition.
New Federal Civil Action Options:
Unlike prior law—which only authorized criminal penalties—the new Act allows individuals to bring a civil right of action for trade secret misappropriation. The civil action may be brought for any trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce, which allows for federal jurisdiction over trade secret theft.
The Act makes it clear that it does not preempt state trade secret laws. Rather, the Act offers a “complimentary Federal remedy if the jurisdictional threshold for Federal jurisdiction is satisfied.” This gives trade secret owners the option to choose either a federal or a state venue for their trade secret claims.
Authorization of Ex Parte Seizures:
One of the most controversial provisions of the Act is the authorization of ex parte seizures. In “extraordinary circumstances,” a federal court may now “issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”
Before the court can issue the seizure order, the court must find that the seizure is warranted. The Act lists eight requirements that must be satisfied before the court can issue the seizure order.
The court must also issue an order containing certain findings and conclusions and providing for the “narrowest seizure of property” in a manner that does not disrupt business operations. The seizure order must be accompanied by an order protecting the seized property from disclosure. It must give law enforcement officials guidance on executing the order, set a prompt hearing within 7 days, and require the applicant to provide security for payment of damages if the court finds that the seizure is wrongful or excessive.
The next post continues discussion of the 2016 Act, and includes specific drafting recommendations for attorneys.
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