1) Litigation
May 2016
Finally, Federal Protection of
Trade Secrets
By Joshua Horn
On Wednesday, May 11, 2016, the Defend
Trade Secrets Act of 2016 (DTSA) became law. The
DTSA provides, for the first time, uniform federal
protection of trade secrets. This statute is a game
changer when it comes to protecting your trade
secrets, providing an exclusive federal forum and
specific rights to injunctive and monetary relief. “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.”
In the past, companies were left to the
uncertainties of state trade secret laws that varied
from state to state. What may be a trade secret
in one state may not be in another. Attempted
enforcement of trade secrets in state courts also left
companies to the vagaries of the courts in the state
in which you or the other guys were located. Under
the DTSA, federal courts have exclusive jurisdiction
over such claims. This is significant because the
federal courts apply a uniform set of procedural and
evidentiary rules, where such rules applicable to
state courts vary from state to state and frequently
within a state as well.
The DTSA also provides for significant injunctive
relief that a party can obtain on an ex parte basis;
in other words, without providing the offending
party notice of your seeking judicial relief. If you
meet the evidentiary threshold under the DTSA, this
law permits a court to 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.” A court can only
enter such an order if you make a showing that you
would otherwise have to make to support a claim
for injunctive relief; namely, immediate irreparable
harm if an injunction is not entered that cannot be
compensated by monetary relief. A moving party
also has to show that it is likely to establish that the
information is a trade secret and that the opposing
party misappropriated the trade secret by improper
means or conspired to do so. You would also have to
show that the offending party has possession of the
trade secret, and, finally, that there is an immediate
threat that the offending party will “destroy,
move, hide or otherwise make [the trade secret]
inaccessible to the court.”
The DTSA also specifies what must be included
in an order granting such relief. Among other
things, the moving party is required to post security
determined by the court to pay the non-moving
party damages in the event of a “wrongful or
excessive seizure or wrongful or excessive attempted
seizure under” the DTSA. In addition, the property
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2) Litigation Alert | May 2016
seized must remain in the custody of the court (and
out of the possession of the moving and non-moving
parties) until there is a full court hearing on the
seizure and potential return of property to either
party.
An order entered under the DTSA can also allow
state or local law enforcement officials to participate
in the seizure, but the moving party cannot. Local
officials can also solicit the service of technical
experts (unaffiliated with the moving party) to assist
in the seizure. The court can also appoint a special
master who can facilitate the return of unrelated
property and data that may be seized as part of the
overall seizure. In other words, the DTSA formalizes
and legitimizes a type of self-help trade secret
protection while, at the same time, excluding the
moving party from that process. By doing so, the
moving party avoids allegations by the responding
party that the self-help was excessive in some way.
By the same respect, the non-moving party can have
some level of assurance that the moving party is not
going to access the responding party’s own trade
secrets in the process and, in fact, will have that
unrelated material captured in a seizure returned to
the responding party.
Beyond injunctive relief, the DTSA provides for
the award of damages for any of the following:
(1) actual loss caused by the misappropriation; (2)
unjust enrichment caused by the misappropriation
not otherwise addressed by the actual loss; or (3) a
reasonable royalty for the unauthorized disclosure
of the trade secret. Exemplary damages of not more
than two times the actual loss may be awarded for
willful and malicious misappropriation.
Although the DTSA provides companies with a
hammer to enforce their trade secrets, the DTSA
also punishes a party who acts inappropriately
in either claiming trade secret protection or
infringing with another’s trade secrets. If a claim of
misappropriation is made in bad faith, the prevailing
responding party is entitled to its reasonable
attorney’s fees. Conversely, the moving prevailing
party is entitled to its attorney’s fees where the
misappropriation was willful and malicious or where
a motion to terminate an injunction is made in bad
faith.
The DTSA finally provides companies with a
federal right and forum in which to protect their
trade secrets through injunctive relief, seizures
of misappropriated trade secrets and monetary
damages. Through the attorney’s fee shifting
provision, the DTSA provides companies with a
further financial incentive to go after a company
that misappropriated trade secrets in bad faith. At
the same time, companies must act with caution
because pursuing a claim in bad faith could result in
you paying your opponent’s attorney’s fees.
For more information about this alert, please
contact Joshua Horn at 215.299.2184 or
jhorn@foxrothschild.com or any member of the
firm’s Litigation, Intellectual Property or Corporate
Departments.
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