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DTSA Expands Protection to Trade Secret Owners

With President Obama’s signing of the Defend Trade Secrets Act (DTSA) on May 11, 2016,  federal intellectual property law has expanded to include trade secrets, which had previously been governed exclusively by state law. Although the text of the DTSA is largely consistent with the Uniform Trade Secrets Act (UTSA), the law which 48 states have adopted in some form to protect trade secrets, this new law contains several features which will provide expanded protection to trade secret owners.

Federal Courts

One of the primary benefits of the DTSA is the ease of access to federal courts to pursue trade secret claims. Prior to the enactment of the DTSA, trade secret owners had to overcome several procedural hurdles, including diversity of the parties, before being able to proceed in federal court. With the enactment of the DTSA, trade secret holders will be able to pursue claims of trade secret misappropriation directly in federal court without having to clear these obstacles.

Additionally, the DTSA should increase the consistency and uniformity of trade secret law in the United States. When a trade secret owner proceeds in federal court, it will pursue a claim under a single body of federal trade secret law, applicable nationwide. Even though most of the states have enacted some form of the UTSA, each state had adopted its own unique version of UTSA which were subject to interpretation by the courts of each state. Because trade secret claims brought the DTSA will rely on a single body of federal law, trade secret owners will receive more consistency in the pursuit of their claims.

Seizure Proceedings

Occupying almost 50% of the enacted law, the most controversial and important change from the UTSA is the inclusion of an ex parte civil seizure provision in the DTSA. Although the DTSA includes other traditional remedies which were previously included in the UTSA, the DTSA provides for a remedy which had previously only been afforded to misappropriations of other types of intellectual property, such as trademarks and copyrights.

Upon learning that it has been accused of misappropriating a trade secret, one of the first actions taken by a trade secret thief is to attempt to dispose of or destroy trade secret or the property embodying it. Thus, filing a claim for trade secret misappropriation under the UTSA sometimes increased the harm caused by the initial trade secret theft.  As a result, trade secret owners needed a way to seize the trade secret or the property embodying it without first notifying the other party.  Under this provision, without first notifying the other party, trade secret owners would be able to seize both the trade secret and the property embodying it in an expedient manner. Because the trade secret thief will not participate in the process for granting a seizure order under this provision, the trade secret owner will be able to act quickly to prevent the spread of its trade secrets without risking further harm to the trade secret.

In addition to providing a much needed remedy to trade secrets owners, the enactment of this provision provides a major deterrent to would be trade secret thieves. These would be thieves, knowing that their own property is now subject to civil seizure, may be reluctant to engage in the misappropriation of trade secrets. Even if the granting of an ex parte seizure order is limited to “extraordinary circumstances,” the mere existence of this remedy may prevent parties from engaging in trade secret misappropriation. 

Foreign Misappropriation

The DTSA does not expressly limit its reach to trade secret misappropriation which occurs domestically in the United States. Although some commentators have suggested that such a limitation is necessarily implied in the DTSA, other provisions of the DTSA make it clear that the federal government is concerned not only with domestic trade secret misappropriation, but also with misappropriation that is occurring internationally. Without such an express limitation, whether the current form of the DTSA is meant to curtail trade secret theft occurring outside of the United States or more legislation is forthcoming is subject to debate and further judicial interpretation.