A Primer On The Defend Trade Secrets Act

A trade secret in the United States, once protected under state common law and state statute, is now officially a matter of national importance. President Barack Obama signed into federal law on May 11, 2016 the bi-partisan Defend Trade Secrets Act (DTSA), which creates, among other things, a federal cause of action for theft or misappropriation of trade secrets used in, or intended for use in, interstate or foreign commerce. See Pub. L. 114-153, 130 Stat. 376 (2016); see also 18 U.S.C. § 1836(c) (“The district courts of the United States shall have original jurisdiction of civil actions brought under this section.”). “Trade secrets are the commercially valuable designs, processes, techniques, and other forms of information kept confidential by companies because, by virtue of their secrecy, they give companies an edge in a competitive marketplace.” H.R. Rep. No. 114-529, at 2 (2016). Significantly, the DTSA provides ample remedies. It expressly permits relief for aggrieved trade secret owners in the form of compensatory and punitive damages, injunctive relief, and attorney’s fees (in egregious cases). Furthermore, under both extreme and exigent circumstances, a plaintiff may, upon a sufficient factual showing, obtain an order seizing goods in commerce to protect against the unlawful dissemination of the trade secret, sales made in furtherance of the misappropriation, and the destruction of evidence.

In Massachusetts, the common law and state statute have historically protected the trade secrets of businesses and individuals–from manufacturers, engineers, and inventors to billiard parlors, bakeries, and textile mills–who have, for example, a valuable formula, process, device, method, or blueprint, which is kept confidential, and then stolen. Under the Uniform Trade Secrets Act, with which the majority of states agree, a trade secret is protectable if (a) it derives independent economic value from not being generally known or readily ascertainable by others who can obtain economic value from its disclosure or use, and (b) its owner makes reasonable efforts to maintain its secrecy. A minority of states, including Massachusetts, follows the Restatement of Torts § 757, comment b, which differs in that the trade secret owner must show that it developed the trade secret and then used it continuously in its business. Significantly, and unlike United States patents, “[n]ovelty and invention are not requisite for a trade secret . . . .” RESTATEMENT OF TORTS, § 757, comment b.

Under the DTSA, trade secret protection is afforded to information for which:

(A) the owner thereof 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.

18 U.S.C. § 1839(3). The key considerations in litigation under this definition, and in most trade secret litigation, are the “reasonable measures,” “economic value,” and “not generally known” or “reasonably ascertainable through proper means.” The appropriation of trade secrets by “improper means,” however, is typically compelling evidence in obtaining a temporary restraining order or preliminary injunction. Improper means is thereby defined broadly under the DTSA as “theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means.” 18 U.S.C. § 1839(6). See Henry Schein, Inc. v. Jennifer Cook, 2016 WL 3212457 (N.D. Cal. Jun 10, 2016) (TRO allowed as to trade secrets obtained in violation of confidentiality and non-solicitation agreement concerning pricing, supplier, customer list, and process data for moving former employee); Henry Schein, Inc. v. Jennifer Cook, 2016 WL 3418537 (N.D. Cal. June 22, 2016) (allowing preliminary injunction in part).

The DTSA makes clear that it does not otherwise pre-empt state common law or statutory protections. Interestingly, though the DTSA does limit its remedies to a certain extent in order to protect employee mobility. The availability of injunctive relief is restricted so as not to “prevent a person from entering into an employment relationship.” 18 U.S.C. § 1836(b)(3)(A)(i)(I)-(II). An injunction’s restrictions, moreover, “shall be based on evidence of threatened misappropriation and not merely on the information the person knows.” Id. Finally, the DTSA forbids the issuance of an injunction that “conflict[s] with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.” Id.

Finally, the DTSA removes an obstacle to potential whistleblowers reporting misconduct or wrongdoing. The employee reporting misconduct is immunized from the disclosure of the trade secret necessary to report it. 18 U.S.C. § 1833(b)(1)(A)-(B). Employers now must disclose this immunity “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” 18 U.S.C. § 1833(b)(3).


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