The Defend Trade Secrets Act: A New Tool in the Toolbox for Protecting Your Business’ Intellectual Property
“The future of the nation depends in no small part on the efficiency of industry, and the efficiency of an industry depends in no small part on the protection of intellectual property.” – Richard Posner, Judge Seventh Circuit Court of Appeals
This May, Congress passed the Defend Trade Secrets Act (DTSA) to help American industry better protect its intellectual property. The DTSA seeks to address a perceived shortcoming of existing federal law, the Economic Espionage Act of 1996, guarding American intellectual property rights. The Economic Espionage Act relies on governmental agencies to police thefts of intellectual property rights. Resource constraints limit the government’s ability to police the theft of intellectual property rights. By giving trade secret owners a private federal cause of action, the DTSA deputizes business owners to more effectively police their own intellectual property assets.
Trade secret protection has long been the purview of state law. The DTSA was modeled after the Uniform Trade Secrets Act (UTSA), which forms the foundation of trade secret protections in most states. Versions of the UTSA have long been the law in Indiana (1993) and Michigan (1998). The DTSA does not preempt Indiana or Michigan’s trade secret protections but offers additional tools to help business owners protect their rights. The DTSA, like the UTSA, authorizes the court to grant injunctive relief to prevent actual or threatened misappropriation of trade secrets. The DTSA, again like the UTSA, also authorizes the court to award damages to parties whose trade secrets are misappropriated. Damages may be measured in relation to the actual loss suffered by the injured party or to the amount of any unjust enrichment enjoyed by the party using misappropriated secrets. If damages cannot be measured, the court may require that a reasonable royalty is paid to the trade secret owner for a period of time. The DTSA, again like the UTSA, authorizes the court to award exemplary damages in the event that the misappropriation is determined to be willful and malicious and/or attorneys’ fees to the extent that either party’s actions vis-à-vis the court are found to be in bad faith or that the misappropriation is determined to be willful and malicious. The precise boundaries of what constitutes willful and malicious behavior have been left to the courts to sort through via precedent. Case law suggests that a finding of willful or malicious misappropriation hinges on the degree of intentionality or purposefulness motivating a person’s actions.
The DTSA adds two new protections not found in the UTSA. First, the DTSA establishes an ex-parte seizure mechanism to help business owners in situations where a trade secret theft is in the process but not yet complete. This measure is in addition to injunctive relief remedy authorized by the DTSA and its application is intended to be reserved for extraordinary circumstances where the seizure of property is necessary to prevent the disclosure of a trade secret or its movement beyond the jurisdiction of the courts. Second, the DTSA (i) provides immunity to persons who disclose trade secrets in connection with certain whistle-blower-type legal actions and (ii) requires employers to disclose the existence of this federal immunity in any non-disclosure agreements entered into with employees, consultants or independent contractors. Failure by an employer to provide such notice could result in that employer not being able to access the exemplary damages and attorney’s fees remedies afforded by the DTSA. Given the expense associated with litigating trade secret claims, the risk of losing the attorney’s fee remedy is a meaningful incentive for businesses to provide the notice called for by the Act.
As Judge Posner underscores, trade secrets are the lifeblood of small business. Protecting trade secrets from disclosure and responding decisively if trade secrets are stolen are important issues for any small business owner to consider. And while vigilance in protecting trade secrets from inadvertent disclosure or unauthorized access remains the best method of protecting a business’ intellectual property portfolio, awareness of the legal protections available to business owners if the worst should happen is also very important.
Author: Pete Gillin is a seasoned transactions attorney whose experience includes advising middle-market and closely-held businesses. Practice areas include business counsel, business formation, business transactions, business acquisitions, succession planning, partnership agreements, financing agreements, contract review, and intellectual property matters.
You can contact Pete by calling 574.232.3538 or email email@example.com.