On April 27, 2016, the U.S. House of Representatives passed the Defend Trade Secrets Act of 2016 (known as the DTSA) after the Senate passed a bill with the same Act a few days earlier. The DTSA is expected to become law with President Obama’s signature. The DTSA will provide federal protection for trade secrets and will give owners of trade secrets additional litigation tools to use against defendants accused of misappropriation.
Trade secrets are currently protected primarily under state law. Most states, including Iowa, have a version of the Uniform Trade Secrets Act (UTSA). Over time, states have established a body of case law interpreting and implementing the UTSA. Trade secrets are also protected under federal criminal laws, such as the Economic Espionage Act of 1996. The DTSA will extend the Economic Espionage Act to authorize a private civil cause of action in federal court for misappropriation of a trade secret.
The primary purposes of the DTSA are two-fold. First, the DTSA will open federal courts to all plaintiffs seeking trade secret protection. Federal courts are often the preferred venue for corporations, particularly those who do business nationally. Second, the DTSA will facilitate the creation of a federal body of case law. By creating a federal body of case law, trade secret protection is expected to be more nationally consistent than the existing case law interpreting the UTSA.
In many respects, the DTSA is similar to the UTSA. Both define “misappropriation” consistently and both provide similar remedies—injunctive relief, compensatory damages, exemplary damages, and the potential recovery of attorney fees in the event of willful or malicious misappropriation. Both also provide a three-year statute of limitations.
However, the DTSA provides additional protection in the form of an ex parte seizure order. This would allow a plaintiff to take proactive steps for the seizure of its trade secrets prior to giving any notice of the litigation to a defendant. Such a seizure order would be available only in “extraordinary circumstances”—but this is still beyond what a state court can do under the UTSA to proactively protect a trade secret.
There are other differences. Under the DTSA, a court will not grant injunctive relief for actual or threatened misappropriation if the injunctive relief would prevent an employee from entering into an employment relationship. A court is also limited in placing conditions on a new employment relationship unless the prior employer shows a threatened misappropriation based on more than the information the employee knows. This limits a plaintiff’s ability to pursue a misappropriation claim based on an inevitable disclosure theory. The UTSA has no such limitations.
In addition, the DTSA contains an immunity provision to protect individuals from liability for disclosing a trade secret in confidence to a government official or attorney to report a violation of law. This safe-harbor for whistleblowers is also absent from the UTSA.
Notably, the DTSA does not contain language preempting the UTSA or other causes of action. This means a plaintiff seeking to protect its trade secrets may have two (or more) tools at its disposal. The full extent to which the DTSA may preempt some aspects of the UTSA will likely be worked out by courts over time.
Many business leaders and large corporations welcome the addition of the DTSA. The DTSA elevates trade secrets to the status and federal protection enjoyed by other intellectual property rights, such as copyrights, trademarks, and patents.
It is becoming more important than ever for a business to protect its trade secrets—and other intellectual property assets—from competitors, hackers, and even employees and business partners. Every time an employee joins or leaves a business, it is important to formalize trade secret ownership and legal obligations. Similarly, every time trade secrets are shared among business partners, it is vital to understand the legal obligations and ownership of trade secrets in order to protect the trade secrets and also to avoid potential liability for misappropriation.
With the passage of the DTSA, it is a good time for businesses to reevaluate their agreements and policies with respect to trade secrets. The more vigilant a business is at proactively protecting its trade secret assets, the better positioned it will be to take advantage a changing marketplace—and to be ahead of the curve in the event a trade secret dispute heads to litigation.
 Under the DTSA, “misappropriation” is defined as follows—
(A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(B) disclosure or use of a trade secret of another without express or implied consent by a person who—
(i) used improper means to acquire knowledge of the trade secret;
(ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was—
(I) derived from or through a person who had used improper means to acquire the trade secret;
(II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or
(III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or
(iii) before a material change of the position of the person, knew or had reason to know that—
(I) the trade secret was a trade secret; and
(II) knowledge of the trade secret had been acquired by accident or mistake.
Under the UTSA, “misappropriation” means doing any of the following:
a. Acquisition of a trade secret by a person who knows that the trade secret is acquired by improper means.
b. Disclosure or use of a trade secret by a person who uses improper means to acquire the trade secret.
c. Disclosure or use of a trade secret by a person who at the time of disclosure or use, knows that the trade secret is derived from or through a person who had utilized improper means to acquire the trade secret.
d. Disclosure or use of a trade secret by a person who at the time of disclosure or use knows that the trade secret is acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.
e. Disclosure or use of a trade secret by a person who at the time of disclosure or use knows that the trade secret is derived from or through a person who owes a duty to maintain the trade secret’s secrecy or limit its use.
f. Disclosure or use of a trade secret by a person who, before a material change in the person’s position, knows that the information is a trade secret and that the trade secret has been acquired by accident or mistake.
See Iowa Code § 550.2(3).
For more information, please contact Bradley & Riley PC at 319-363-0101.