Congress Passes New Federal Trade Secret Act – Law Would Go Into Effect Immediately

In what is being heralded as the “most significant expansion of federal law in intellectual property since the Lanham Act in 1946,” Congress this week passed the Defend Trade Secrets Act of 2016 (the “Act”), which had near unanimous support in both the Senate and House of Representatives. The Act provides a uniform set of standards governing trade secret infringement, including a federal claim for trade secret misappropriation, a powerful ex-parte seizure provision, and availability of monetary damages and injunctive relief. Once President Obama signs the Act – which the White House has previously voiced support for – it will go into effect immediately.

When signed into law, the Act will amend the Economic Espionage Act of 1996 to provide federal jurisdiction for trade secret misappropriation, but will not displace or preempt existing state law. According to Congress, federal jurisdiction in trade secret cases was necessary because theft of trade secrets occurs often in the United States and worldwide and harms companies and their employees.

The Act authorizes the owner of a trade secret that is misappropriated to bring a civil action in federal court if that trade secret is “related to a product or service used in, or intended for use in, interstate or foreign commerce.” The Act defines “trade secret” 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 regardless of whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if: (a) the owner 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 another person who can obtain economic value from the disclosure or use of the information.” Essentially, this includes any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.

The Act defines “misappropriation” in line with the Uniform Trade Secrets Act already adopted by many states. “Misappropriation” means (a) the 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) the disclosure or use of a trade secret without consent by a person who (i) used improper means to acquire the trade secret; (ii) or knew or had reason to know that the knowledge of the trade secret was (I) derived by improper means, (II) acquired under circumstances giving rise to a duty to maintain secrecy or limit use, or (III) derived from a person who owed a duty to maintain secrecy; or (iii) the person knew or had reason to know the trade secret was a trade secret and had knowledge that the trade secret was acquired by accident or mistake. The term “improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, and espionage through electronic or other means.

The Act provides remedies for trade secret misappropriation similar to those available under state law, such as injunctive relief, compensatory and actual damages, damages for unjust enrichment, a reasonable royalty, and increased damages if a trade secret was “willfully and maliciously misappropriated.” Attorney’s fees are also available if the owner establishes that the trade secret was willfully or maliciously misappropriated. The Act places a three year statute of limitations on filing a civil claim.

The Act has received significant attention for how it would empower federal courts to seize property based on an ex parte application. The Act, however, limits use of the ex parte seizure process to “extraordinary circumstances” and permits courts to make only the narrowest seizure necessary in order to avoid interrupting the business operations of the person accused of misappropriating the trade secret. Upon issuance of a civil seizure order, the applicant seeking seizure must also provide adequate security (e.g., a bond) for the payment of damages that any party may suffer as a result of wrongful or excessive seizure or attempted seizure.

The Act also allows any parties who incur damages as a result of excessive or wrongful seizure to bring a cause of action against the applicant. Courts must also comply with state laws governing employee mobility so as not to “prevent a person from entering into an employment relationship.”

Given that the Act will likely be signed into law, companies should evaluate their trade secrets and review and implement ways to protect them that are consistent with this new regime. RatnerPrestia attorneys are available to discuss how the Act may impact your business and help develop a program to protect your company’s valuable trade secrets. As the law in this area continues to evolve, we will provide more updates.

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