March 30, 2017

Defend Trade Secrets Act of 2016

On Thursday, January 27, 2016, the Senate Judiciary passed a voice vote in favor of the Defend Trade Secrets Act of 2016 (“DTSA”).  The bill, which was sponsored by Sens. Orrin Hatch (R-Utah) and Chris Coons (D-Del), and may offer the best chance ever for the passage of a civil trade secrets law.

The DTSA would build upon the Economic Espionage Act, including its definition of a “trade secret,” and would seek to provide for injunctions, civil seizure orders preventing the dissemination of the subject trade secret(s), preservation of evidence and damages.  The amendments approved by the Committee on Thursday propose:

  • A definition of “misappropriation” of a trade secret generally consistent with that contained in the UTSA and related state uniform acts;
  • Stringent requirements for obtaining a seizure order, making clear that such order will issue only in “extraordinary circumstances”;
  • Requirement of proof of “actual or threatened misappropriation” in order for an injunction to issue, but while expressing the clear intent to not restrict employee mobility (the order cannot “prevent a person from entering into an employment relationship”);
  • The provision of damages for actual loss caused by the misappropriation, damages for unjust enrichment, and reasonable-royalty damages, as well as exemplary damages in an amount not more than 2 times the amount of damages awarded (a provision which previously provided for trebled damages);
  • Statute of limitations of 3 years after the date the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered (shortening the limitations period from the previously proposed 5 years);
  • Whistleblower protections for individuals who disclose trade secrets to the government and in the context of retaliation lawsuits; and
  • An award of attorneys’ fees to the prevailing party when a claim of misappropriation is brought in bad faith, a motion to terminate an injunction is made in bad faith, or the trade secret is willfully and maliciously prosecuted.

To “reduce the threat of and economic impact caused by the theft of the trade secrets of the United States companies occurring outside the United States,” the Act also would require an annual Report on Theft of Trade Secrets occurring abroad to be made by the Attorney General to the Committee on the Judiciary of the House of Representatives and the Senate.

Congress, for many years, has considered enacting a civil trade secrets law to complement the EEA, and should now finally act. The DTSA gives plaintiffs access to federal courts, which are better equipped than state courts to handle interstate and international misappropriation of trade secrets. Congress has adequately addressed many of the concerns that opponents have expressed over the years. It is now time for Congress to act and pass the DTSA.

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