On May 11, 2016, President Obama signed into law legislation that will federalize trade secrets law.
The Defend Trade Secrets Act of 2016 (the “Act”) adds a federal civil cause of action for trade secret misappropriation for any injured party, amending federal law that previously allowed only criminal or civil causes of action brought by the U.S. Attorney General.
The Act defines “trade secret” to mean “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
Prior to the Act, trade secret law was exclusively handled at the state level. Though many states followed the Uniform Trade Secrets Act, states had varied in their application of the Uniform Trade Secrets Act.
- 1. The Act Will Give Companies Easier Access to Federal Courts and Contains an Extraordinary Early Remedy in Litigation
The Act will give companies and individuals easier access to federal courts when fighting trade secret battles. It also provides a three-year statute of limitations after the discovery of claims of trade secret theft. The Act also contains some serious teeth for those seeking to protect their trade secrets: it allows federal courts to issue ex parte seizure orders to prevent the dissemination of a trade secret. This provision allows a company to go to a court alone – without the opposing party – to obtain an order mandating information / property to be held by a court until the dispute is resolved. The only caveat on this provision is that it is to be used in “extraordinary circumstances,” a term that is not defined by the Act, but presumably limits its applicability. However, the Act does charge the Federal Judicial Center to develop within two years best practices for the seizure of information, media storing of the information, and securing of the same.
- 2. Damages Under the Act Can be Significant
The Act allows for a series of remedies upon a finding of a misappropriation of a trade secret including: injunctive relief, damages for the actual loss, and damages for any unjust enrichment that is not addressed in computing the actual loss. In addition, upon a finding that the trade secret was willfully and maliciously misappropriated, the prevailing party may be awarded punitive damages up to two times the amount of the actual damages awarded.
The Act also provides for attorney’s fees to a prevailing party. However, if the claim for misappropriation of trade secrets is made in bad faith, or a motion to terminate the injunction is made or opposed in bad faith, then the prevailing party in that instance may also be awarded attorney’s fees.
- 3. The Act Gives Virginia Businesses and Individuals-in particular-New Choices for Filing Actions to Protect Their Trade Secrets
By providing that a company may file in federal court to protect its trade secrets, The Act gives Virginia businesses in particular advantages over Virginia’s codification of the Uniform Trade Secrets Act. This is because it can be difficult to obtain early summary judgment in Virginia state courts, which limit substantially the use of deposition testimony to support a motion for summary judgment. The Federal Rules of Civil Procedure provide for mechanisms to move for summary judgment early in a case, hopefully resolving it through a motion rather than the case needing to be litigated to trial. Notably, the Act does not trump state law, so a company may elect in filing a complaint to proceed under either the Uniform Trade Secrets Act at the Virginia state level or the Defend Trade Secrets Act at the federal level.
The Act is effective as of the date of the enactment, which is to say, for any trade secret misappropriation which occurs on or after May 11, 2016.