by Leiza Dolghih
According to some studies, trade secret theft costs American companies more than $300 billion a year. At least one software security company found that more than 50 percent of employees keep confidential information belonging to their former employers and 40 percent plan to use such misappropriated trade secrets at their new job. It does not help that “trade secrets” are defined very broadly and include 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.
The Federal Defend Trade Secrets Act (DTSA) is the first federal statute that allows companies and individuals who do not have patents, copyrights, or trademarks to sue in federal court to protect their trade secrets.
In May of this year, President Obama signed into law the DTSA, allowing USA companies, including those in Texas, to file lawsuits in federal courts to protect their trade secrets from being shared by former employees with their competitors. The DTSA contains many provisions similar to the Texas Uniform Trade Secrets Act (TUTSA) enacted in Texas in 2013. However, it also contains aggressive enforcement provisions, including court-ordered seizure to prevent the dissemination and use of stolen trade secrets.
The DTSA contains several key features that may come to play an important role in any business dispute involving intellectual property, breach of non-disclosure agreements, or any host of unfair competition claims.
Federal Civil Action
The DTSA creates a federal civil cause of action, giving original jurisdiction to United States District Courts. This will allow companies to decide whether to bring claims in federal or state courts, and may have the overarching effect of moving most trade secret litigation to federal courts. Unlike a lot of federal statutes, however, DTSA does not preempt Texas statute on trade secret misappropriation. Instead, it offers an alternative venue for enforcing trade secret protections.
The DTSA allows those companies whose trade secrets have been stolen by unscrupulous employees or competitors to recover actual monetary damages, attorney’s fees, and punitive damages against the thief. It also allows the companies to seek injunctive relief preventing the thief from disseminating, using, or benefiting from the stolen information. These remedies are similar to the ones afforded under the state statute.
Seizure of Property
The DTSA includes a controversial and unprecedented provision that permits federal courts to issue an order, upon ex parte application in "extraordinary circumstances," seizing property to protect against improper dissemination of trade secrets. There are many questions surrounding the practical implementation of this seizure provision, including how often the courts will allow such seizures and what standards they will apply in deciding whether to permit a party to seize competitors’ property that might contain its trade secrets.
Protection of Trade Secrets in Court
Under the DTSA, a court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential. Thus, this provision extends beyond briefs filed by parties in court and instead reaches disclosures at trial and court opinions.
In order to be able to take advantage of the DTSA, employers must provide their employees with notice that they will be protected from criminal or civil liability if they disclose a trade secret in confidence to a government official or to an attorney for the purpose of reporting a violation of law. If this notice is not included in a contract or agreement with an employee or independent contractor that governs the use of a trade secret or other confidential information, then the employer may not recover punitive damages or attorney’s fees in any lawsuit brought under the DTSA.