05.02.2016

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Updates

The United States House of Representatives passed the Defend Trade Secrets Act, S. 1890 (DTSA) on April 27, 2016, in identical form to that previously passed by the Senate on April 4, 2016.  Now that the DTSA has cleared Congress, President Obama indicated he will sign it into law in short order.

The DTSA creates a new federal civil cause of action for trade secret misappropriation.  The Act’s basic provisions are modeled upon the Uniform Trade Secrets Act (UTSA), the operative trade secret law in most states, but the DTSA explicitly applies to “interstate or foreign commerce.”  Since the Act does not preempt state trade secret laws, plaintiffs will likely file trade secret misappropriation claims in federal court, asserting both a DTSA claim along with state trade secret claims under supplemental jurisdiction.

DTSA and UTSA Similarities and Differences

The DTSA defines trade secrets and the act of misappropriation in the same manner as provided by the UTSA and parallels many of the substantive and procedural provisions of states implementing the UTSA.  As in state court trade secret cases, the court can grant an injunction to prevent actual or threatened misappropriation.  The DTSA contains a three year statute of limitations, which is typical in state laws as well.  The Act allows exemplary damages to be added in an amount up to twice the damages found for “willful and malicious misappropriation.”  It provides broad damages relief by allowing the court to award damages calculated as an “actual loss caused by the misappropriation” for “unjust enrichment” or as a “reasonable royalty.”  In exceptional circumstances, the court can condition future use of the misappropriated secrets on payment of a reasonable royalty. 

The DTSA also includes “civil seizure” provisions that allow federal courts to order that property be seized when needed to prevent the “propagation or dissemination” of trade secrets.  Similar to a temporary restraining order, seizure can be requested in an ex parte application and ordered shortly after the complaint is filed.  The seizure provisions are designed to prevent an immediate and irreparable injury to the trade secret owner that would occur if seizure does not occur. 

Implication for Trade Secrets Owners

Although some practitioners may continue asserting trade secret matters in state courts that have efficient procedures and experienced judges, asserting violation of the DTSA in federal court will likely be the preferred strategy for larger cases and matters having an international character.  Overall, the volume of trade secret misappropriation cases is expected to increase.  Companies may begin to shift some focus to trade secret protection in lieu of patents, especially in view of the U.S. Supreme Court decisions that have created obstacles to patentability for software inventions (Alice Corp. v. CLS Bank International) and pharmaceutical methods (Mayo Collaborative Services v. Prometheus Laboratories, Inc.).  The DTSA’s passage increases the potential importance of trade secrets and will likely impact the approach that companies take to employee agreements, nondisclosure agreements with joint ventures and vendors, and their overall intellectual property strategy.  

© 2016 Perkins Coie LLP