The Defend Trade Secrets Act Marks a Big Change for Federal IP Law
In what is said to be the most significant change to United States intellectual property law in over a generation, Congress passed the Defend Trade Secrets Act (DTSA) on April 27, 2016. President Obama will likely soon sign this bill into law. Why is this so monumental? Well, federal civil law has generally solely governed just three areas of intellectual property—patents, copyrights, and trademarks. Trade secrets will now be added to this list with the passage of the DTSA.[1]
A trade secret is very simply information that is of extreme worth to a company, and thus kept confidential. Classic examples include the secret recipes for Kentucky Fried Chicken’s (KFC) chicken and Coca-Cola. Trade secrets can go on being kept confidential for an indefinite period of time so long as a company takes active steps to conceal the valuable information. This is notably different from patents and copyrights, which both have expiration dates.[2]
Another difference from its intellectual property counterparts is the way in which trade secrets are litigated. Historically, parties brought trade secret lawsuits in state court, as federal law only provided for criminal prosecution of such matters. The DTSA will now give companies the opportunity to file suit and seek damages in federal court for claims of trade secret theft. Injunctions may be issued in cases where a plaintiff can show “actual or threatened misappropriation.”[3]
Additionally, the DTSA will allow federal courts to order forcible seizures of any trade secret information in the form of servers, computers, paper documents, storage devices, etc. A plaintiff would need to show that the defendant would not adhere to an injunction and would seek to get rid of or conceal any information in his/her possession. While such a remedy gives plaintiffs a significant advantage, defendants may seek to challenge an improper seizure in a hearing held within seven days of the order, whereby a plaintiff will need to justify the order with his/her facts and the relevant law. Here, the defendant can point out any flaws in the plaintiff’s case and seek to have the order dissolved.[4]
Another aspect of the DTSA that is advantageous to defendants is that it prohibits employment restrictions when an injunction is ordered. Typically, when an injunction is ordered, a plaintiff may seek to enjoin the defendant from entering into an employment relationship with a competitor. Under the DTSA, however, this is not the case. Any employment restrictions provided with an injunction must be based on evidence that trade secret misappropriation will actually take place.[5]
Lastly, the DTSA will allow defendants to recover reasonable attorney’s fees if a plaintiff’s claim was made in bad faith, which “may be established by circumstantial evidence.” This will make it significantly easier for defendants to establish bad faith on the part of the plaintiff. This is in contrast to state law, which has a direct evidence standard, making it nearly impossible for defendants to prove bad faith in state court.[6]
While the DTSA has generally been well received politically, as state courts were long deemed inadequate for adjudicating complicated trade secret matters in a growing digital and global world, the Act was not passed without its fair share of criticism. Critics claim that the already well-established state law was enough to adjudicate trade secret matters and that the amount of litigation and litigation costs will increase exponentially with the addition of a new forum for plaintiffs to file their claims in. Moreover, critics argue that the legislation is overly plaintiff-friendly, pointing to the abovementioned remedy for plaintiffs to seek a seizure order as an example. [7]
Such speculation certainly raises questions, but the affect the new legislation has on involved parties remains to be seen. What is for certain, however, is that this is the most expansive change to federal intellectual property law in quite some time.
The text of the Act can be found here: https://www.congress.gov/bill/114th-congress/senate-bill/1890/text
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