Vermont Bar Journal, Vol. 40, No. 2 - Page 20

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
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 Act3 has gained nearly universal acceptance by the states since its inception in the 1960’s and amendment in 1985 (Vermont adopted it in 19964), 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’l5 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 USPTO Technology Centers (which include a number of art units) have undergone quadruple-level increases in patentable sub20 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 Act6 (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. 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