Defend Trade Secrets Act: The New Federal Civil Cause of Action for Trade Secret Misappropriation
By Kluger, Kaplan, Silverman, Katzen & Levine, P.L. January 24, 2017
Although owners of intellectual property, such as copyright, patents, and trademarks, have long had civil redress in federal courts, trade secret litigants have been the “odd man out,” so to speak, of the intellectual property world. However, this omission in the federal landscape was not due to lack of need, as the constant development of technology and growing trend of employee mobility has resulted in an unprecedented level of threat to companies’ trade secrets. Consequently, the Defend Trade Secrets Act (DTSA) was born and signed into law in May 2016. Albeit, the DTSA is not the first time federal lawmakers have addressed the need for trade secret protection, as the new act amends the Economic Espionage Act (EEA) established in 1996, which provides criminal penalties for the theft of trade secrets. The EEA may serve as a deterrent factor, however, until now trade secret owners were left without a federal private civil remedy.
The DTSA confers subject matter jurisdiction over civil actions involving trade secret misappropriation to U.S. district courts, thereby opening federal courts to litigants without invoking diversity or ancillary jurisdiction. In order to bring a claim under the DTSA, the misappropriated trade secret must be “related to a product or service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. §1836(b)(1). Moreover, under the DTSA, the term “trade secret” is defined as:
. . . all 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 if—
- the owner thereof has taken reasonable measures to keep such information secret; and
- the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information;
18 U.S.C. §1839 (emphasis added). The definition of a trade secret under the DTSA is nearly identical to the definition under uniform and state laws, the only difference being that these laws do not contain the same specificity as to the possible types and forms of trade secrets, and instead simply list “information, including a formula, pattern, compilation, program, device, method, technique, or process . . .” See e.g., Fla. Stat. § 688.002(4).
In addition to providing a federal civil remedy, Congress’ goal is for the DTSA to establish a more uniform and predictable regime for trade secret law. While almost all states, including Florida, have adopted the Uniform Trade Secrets Act (UTSA), the title is somewhat misleading as “state laws vary in a number of ways and contain built-in limitations that make them not wholly effective in a national and global economy.” H. Rep. No. 114-529, at 4, 12-14 (2016), as reprinted in 2016 U.S.C.C.A.N. 195-211. On the other hand, Congress hopes that DTSA will serve as a “single, national standard for trade secret misappropriation with clear rules and predictability for everyone.” Id. Further, the DTSA does not preempt state law, but rather the two co-exist to offer multiple avenues for remedying trade secret theft, and litigants can bring claims under both DTSA and their respective state act. Therefore, if circumstances warrant, Florida litigants may assert claims under both the Florida UTSA, Chapter 688, Florida Statutes, and the DTSA.
Notable Sections in the DTSA:
- Immunity for Trade Secret Disclosure
Section 1833 of the DTSA provides immunity to individuals who disclose confidential trade secret information to government officials and the courts when reporting a suspected violation of law, and includes an anti-retaliation aspect, which prevents companies from filing retaliatory lawsuits when employees make these reports and simultaneously disclose trade secrets. Further, companies should be aware that with these protections comes notice requirements that must be reflected in all new and updated employee agreements relating to trade secrets or other confidential information. Failing to provide notice of immunity for these types of disclosures has consequences under the DTSA, as it will effect a company’s ability to recover damages and fees in an action against an employee who did not receive the proper notice.
- Exemplary Damages and Attorneys’ Fees
Similar to the Florida UTSA, under 18 U.S.C. § 1836(B)(C), the DTSA awards exemplary damages for two times the amount of actual damages awarded if “the trade secret is willfully and maliciously misappropriated.” Additionally, attorneys’ fees are available to the prevailing party if: (1) claim for trade secret theft is made in bad faith, (2) motion to terminate an injunction is made or opposed in bad faith, or (3) the trade secret was willfully and maliciously misappropriated. 18 U.S.C. § 1836(B)(D).
- Civil seizure requirements
The DTSA includes a rare remedy in intellectual property law for seizure of the protected property. For example, prior to the DTSA only the Lanham Act, the federal act protecting trademarks, provided such a remedy. Under 18 U.S.C. § 1836(2), the court may issue an order for “seizure of the property necessary to prevent . . . dissemination of the trade secret that is the subject of the action.” The requirements for issuing an order for civil seizure resemble the requirements for issuing a preliminary injunction, with a few additional criteria. For example, the court must find that an alternative form of equitable relief is inadequate, an immediate and irreparable injury will occur if the order is not issued, the applicant has a likelihood of success on certain relevant issues, and balance the harms to the applicant and the person who the seizure would be entered against. However, the consequences of a civil seizure order are more severe than an injunction, as the court takes physical custody of the protected materials.
Activity in Florida Federal Courts: DTSA applies to a continuing misappropriation, even if it began prior to the effective date.
The UTSA bars the act’s application to misappropriations occurring before and continuing after the effective date, as it states: “[w]ith respect to a continuing misappropriation that began prior to the effective date, the [Act] also does not apply to the continuing misappropriation that occurs after the effective date.” This past September, the Middle District of Florida heard a case under the DTSA styled Adams Arms, LLC v. Unified Weapons Sys., Inc., Case No. 8:16-cv-1503-T-33AEP. The Court addressed the issue of whether a trade secret owner may recover under the DTSA for a misappropriation occurring both before and after the act’s effective date. In its statutory interpretation of the DTSA, the Court considered the fact that Congress left out the language from the UTSA quoted above when writing the DTSA. Therefore, in its order the Court held that, unlike under the UTSA, the Plaintiff could recover for the “continuing misappropriation” that occurred after the effective date under the DTSA. The Court’s interpretation of the act is especially noteworthy because it can save a misappropriation claim from dismissal, as it did in the Adams Arms case.
In conclusion, Florida companies and their Human Resources departments should familiarize themselves with the DTSA in the unfortunate event that they need to take action against trade secret theft occurring across state lines. In addition to becoming familiar with the provisions of the act, companies’ legal departments should stay current on the relevant case law because, as evidenced by the Adams Arms case, we will continue to learn more about the DTSA and its effects on the trade secret regime as courts continue to interpret the newly passed legislation.
About the Author
Micayla Mancuso is an associate at Kluger Kaplan, focusing on general and complex commercial litigation. Before joining Kluger Kaplan as a full time associate, she served as a summer associate at the firm. Prior to this, she served as an extern for the City of Boston Law Department and served as a judicial intern in the Boston Municipal Court for Judge Debra A. DelVecchio. She also served as an intern for the Federal Public Defender for the Southern District of Florida.