Authors: Attorney John C. Mitby & Law Clerk Elizabeth L. Spencer
On May 11, 2016, the Defend Trade Secrets Act of 2016 (DTSA) went into immediate effect creating a private federal cause of action for all misappropriation of trade secrets occurring after the date of its enactment. Passing through the senate without any opposition, the DTSA mirrors the Uniform Trade Secret Act (UTSA) that created a private cause of action in most states for trade secret misappropriation. The DTSA has some differences from the UTSA and has already been used by those with misappropriation claims to bring those claims in federal court.
The DTSA has a few unique features. First, the DTSA establishes federal jurisdiction for claims brought under it. This allows plaintiffs to bring claims similar to those under the UTSA in federal court and be subject to federal remedies as opposed to state court state remedies. This importantly allows a plaintiff to obtain address nationwide issues of misappropriation without having address differences in state law which may result in varying outcomes. However, the DTSA does not preempt state law. State law remains preserved, but the DTSA provides uniform definitions, a uniform standard for misappropriation, nationwide service of process, and nationwide execution of judgments allowing for more uniform outcomes.
Second, the DTSA provides an ex parte seizure procedure that may be used in special circumstances where the defendant would “destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person…”. 18 U.S.C § 1836(b)(2)(A)(ii)(VII). A hearing must occur within seven days after the issuance of an ex parte seizure order.
Third, the new Act addresses electronically stored information and instructs how the court is to protect seized trade secret material. The court must “secure the seized material from physical and electronic access during the seizure and while in the custody of the court.” 18 U.S.C. § 1836(b)(2)(D)(i). Additionally, the court must prohibit any seized item from “being connected to a network or the Internet without the consent of both parties” pending a full hearing. 18 U.S.C. § 1836(b)(2)(D)(ii).
Finally, the DTSA includes whistleblower provisions that provide immunity for the disclosure of trade secrets to government officials when reporting violations of the law. This protects individuals from retaliatory accusations of misappropriation.
The DTSA has already been put to use by those alleging trade secret misappropriation. In M.C. Dean, Inc. v. City of Miami Beach, Florida, No. 16-21731-CIV, 2016 WL 4179807 (S.D. Fla. Aug. 8, 2016), a subcontractor brought action against a city under the DTSA and the Florida Uniform Trade Secrets Act (FUTSA) when the city allegedly provided a union with the subcontractor’s certified payroll. M.C. Dean was contractually obligated to provide the payroll information to the general contract and the general contract later disclosed it to the city. A local union requested the payroll information under the Florida Public Records Act. The city disclosed unredacted versions of the information and the union refused to return the information upon request. M.C. Deans success is dependent on its investment and recruitment of employees. While M.C. Dean was able to bring their suit in federal court as a result of the DTSA their suit was ultimately dismissed for failing to plausibly allege, under either the DTSA or FUTSA, that it took steps to reasonably protect its trade secrets and failing to allege misappropriation. The similarities between the DTSA and the FUTSA provide that the suit would have failed under either act.
The DTSA will most likely not have an immediate effect on businesses that already have protocol in place for protecting their trade secrets as the elements for what qualifies as a trade secret and what qualifies as misappropriation are similar to most state versions of the USTA. Businesses will encounter the new legislation when they believe that a trade secret of theirs has been misappropriated and must decide whether to file a suit in state or federal court. Success of a suit often depends on what a business has done to reasonably protect a secret. Consult an attorney if you have concerns about whether you are taking proper action with employees, clients, and other businesses to ensure that your trade secrets will be protected under the Act.