THE DEFEND TRADE SECRETS ACT

The misappropriation of a trade secret may now be enforced in the federal courts. On May 11th President Obama signed the Defend Trade Secrets Act of 2016.

Previously, entities seeking relief for the misappropriation of their trade secrets had to resort to their state courts and state law. Although 48 states have adopted the Uniform Trade Secrets Act in some form, as with any state statute, each of those state’s courts could interpret that state’s version of that Act differently. The exception to this was if you could show diversity jurisdiction, i.e., that the parties involved in the theft of trade secrets were from different states but in many cases trade secrets are stolen by an employee or a local competitor and in those cases federal court relief is unavailable.

This has now changed under the Defend Trade Secrets Act which provides a federal civil remedy for the misappropriation of trade secrets. Note that it does not preempt any preexisting state law remedies. For this reason, a party seeking judicial relief for the misappropriation of trade secrets needs to consider differences in statutes of limitation, attorney’s fees and other available damage relief and make a decision as to whether to file suit in state or federal court.

The Federal Defend Trade Secrets Act provides that, “An owner of a trade secret that is misappropriated may bring a civil action if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” There is a three-year statute of limitations from the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered.

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 (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.”

“Misappropriation” is defined as “(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.”

“Improper means” (A) includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and (B) does not include reverse engineering, independent derivation, or any other lawful means of acquisition.

Remedies for misappropriation of a trade secret under the federal Act include injunctive relief, damages for actual loss caused by the misappropriation, damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss; or in lieu of damages measured by any other methods, the damages caused by the misappropriation measured by imposition of liability for a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret. If the trade secret is willfully and maliciously misappropriated, exemplary damages may be awarded in an amount not more than 2 times the amount of the damages awarded under the previous provisions.

In addition, in extraordinary circumstances only, a court may, upon ex parte application, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action if equitable relief would be inadequate to achieve the purpose of this paragraph because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order. In order to obtain such relief the requestor must also demonstrate that immediate and irreparable injury will occur if such seizure is not ordered; the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered and substantially outweighs the harm to any third parties who may be harmed by such seizure; and that the applicant is likely to succeed in showing that the information is a trade secret, that misappropriation occurred, that the person against whom the seizure order is sought has actual possession of the trade secret and any property to be seized and equitable relief would be inadequate to achieve the purpose of this paragraph because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order.

Trade secrets may be disclosed under the Act if made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and solely for the purpose of reporting or investigating a suspected violation of law; or “is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” Also, an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order. Note here that “employee” is defined broadly to include “any individual performing work as a contractor or consultant for an employer.”

About ERIC WACHSPRESS

The material on this website is for informational purposes only. It should not be considered legal advice and is not intended to create an attorney-client relationship. If you have questions regarding any material presented herein, we recommend that you consult an attorney. This web site and information presented herein were designed in accordance with Illinois law. Any content in conflict with the laws or ethical code of attorney conduct of any other jurisdiction is unintentional and void.

I am a Chicago attorney practicing in the areas of trademark, copyright and information technology law as well as general corporate law. Formerly a trademark examining attorney with the United States Patent and Trademark Office, I have been in private practice since 1987 representing clients in a wide variety of industries, including the consumer products, financial services, information technology and entertainment industries. You can contact me at markscounsel@gmail.com, by phone at 773.934.5855 or by mail at 417 S. Jefferson St., #304, Chicago, IL 60607 USA

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