by Stuart Meyer , Esq .
WHAT ’ S NEW The Defend Trade Secrets Act Creates a Federal Option for Addressing Misappropriation
On May 11 , 2016 the President signed into law the Defend Trade Secrets Act (“ DTSA ”), 1 calling it “ a strong enforcement bill that allows us not only to go after folks who are stealing trade secrets through criminal actions , but also through civil actions , and hurt them where it counts in their pocketbook .” 2 The President underscored one of the reasons that the DTSA passed unanimously in the Senate and by a vote of 410-2 in the House . It ’ s important . Very important .
Trade secrets have long been the poor cousin of the three primary modes of protecting intellectual property : patents , copyrights , and trademarks . Rather than being protected by federal law , trade secrets have remained largely creatures of state law . The Uniform Trade Secrets Act 3 has gained nearly universal acceptance by the states since its inception in the 1960 ’ s and amendment in 1985 ( Vermont adopted it in 1996 4 ), but even so the UTSA remains anything but Uniform , with many states adding their own tweaks to its legislative framework .
More importantly , lack of a federal civil trade secrets cause of action for private parties has had international implications . The U . S . has been hard-pressed to urge other countries to establish strong trade secrets protection when we have had no national mechanism for companies to bring a civil suit for misappropriation . While state laws are adequate for many tasks , they are more difficult to enforce when defendants outside the U . S . are involved . Issues ranging from service of process to enforcement assistance by U . S . Customs are far easier to address with a federal statute in place .
But there ’ s another big-picture reason that the passage of the DTSA , at this time , will prove to be significant . It comes at a time when , particularly for some 21st century industries , patent protection is on the wane . The aftermath of the 2014 Supreme Court decision in Alice Corp . v . CLS Bank Int ’ l 5 has been dramatic , particularly on patent protection for inventions that focus more on computer technology than things like gears and motors . Some “ art units ” of the U . S . Patent and Trademark Office have seen patent allowance rates plummet from well over 50 % to single digits . Entire USP- TO Technology Centers ( which include a number of art units ) have undergone quadruple-level increases in patentable sub- ject matter rejections . The result : For some very important areas of innovation , patents can no longer be counted on . Patents are simply not being allowed as frequently for inventions that have minimal physical features ( i . e ., inventions that would not hurt if they dropped on your foot ). Copyrights and trademarks can sometimes pick up the load in these instances , but the protections they provide are narrower and less likely to address any but the most egregious forms of imitation .
The DTSA mirrors in many aspects the essential elements of the UTSA , but provides federal jurisdiction for parties who otherwise might be limited to state court actions . The definitions of what constitutes a trade secret and when actions can be brought are largely the same . However , there are at least a couple of notable changes that warrant the attention of anyone who runs across trade secrets issues even occasionally . Further , the DTSA calls for one simple but important action item companies should attend to immediately .
First , the DTSA creates a civil law mechanism for ex parte “ seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action .” This measure is expressly intended to be used “ only in extraordinary circumstances ” but nonetheless offers a trade secret owner an option that was not previously available ( at least without government intervention and corresponding loss of control of both the action and the secret ). The DTSA is actually an amendment to the Economic Espionage Act 6 ( EEA ), a 20-year old statute that allowed the government to address trade secret violations . The ability for private parties to seek seizure of , for instance , products embodying their trade secrets , is a welcome safety net , even with the provisions requiring that extraordinary circumstances be established .
A second departure from the UTSA comes from the provisions of the DTSA that establish certain immunities for whistleblowers . It should come as no surprise that in some circumstances , an employee of a company who wants to report a suspected violation of law to the government may not be able to do so without disclosing to a government official information that would fit the definition of a trade secret . Likewise , under the DTSA an employee ( or contrac- tor or consultant ) is expressly permitted to disclose a trade secret to a court should an employer bring a retaliation lawsuit to punish the employee for reporting a suspected violation of law . Companies are required to include in their employee agreements notice about the whistleblower provision . If they do not , they lose the opportunity to obtain enhanced ( potentially doubled ) damages and attorney fees under the DTSA . As noted above , this is an essential action item for all companies .
An interesting aspect of the DTSA comes in the terminology used in the statute . The conventional phrasing of “ misappropriation ” remains in most of the substantive portions of the statute , such as stating that the owner of a misappropriated trade secret may bring a civil action , with misappropriation being defined as ( a ) acquisition by improper means , or ( b ) disclosure or use without the owner ’ s consent . However , the prefatory language and headings of the DTSA are replete with references to “ theft ” of trade secrets and the value of “ stolen ” trade secrets . This is particularly evident in the section of the statute dealing with reports that the Attorney General ( in consultation with the Director of the U . S . Patent and Trademark Office , the Intellectual Property Enforcement Coordinator , and the heads of other relevant agencies ) is required to give on “ theft of trade secrets occurring abroad .” In the past , the U . S . Trade Representative and various government agencies have used terms such as “ theft ” and “ stolen ” regarding trade secrets to emphasize the importance of enforcing trade secret protections . 7
Such language highlights one of the underlying reasons that the DTSA was enacted : to inform other countries that the U . S . views trade secrets to be just as important as patents , copyrights and trademarks . As mentioned above , one of the historical problems that the U . S . government had in negotiating IP treaties with other countries was that the U . S . could not point to its own specific body of trade secrecy law . Much as the U . S . had done in finally securing accession to the century-old Berne Convention regarding copyrights in the 1980 ’ s , 8 the government was forced to explain how the various state laws defined a minimum level of trade secrecy protection that other countries should also consider as being necessary to provide reasonable pro-
20 THE VERMONT BAR JOURNAL • SUMMER 2016 www . vtbar . org