Congress Passes Major Federal Overhaul of American Trade Secrets Law

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On April 27, Congress created a new tool for responding to the theft of valuable company information: a federal claim for trade secret misappropriation. The Defend Trade Secrets Act (DTSA) unanimously passed the Senate earlier this month and passed the House on Wednesday with only two dissenting votes, and there is no doubt that the President will sign it into law in short order.

Legal relief for trade secret theft has been available under state law for decades, but the lack of uniform law among the states caused problems. In an effort to improve uniformity, 48 states adopted the Uniform Trade Secrets Act. But even with improved consistency in state law, courts in different states interpreted the law differently and provided inconsistent protection. Furthermore, state law is necessarily limited by state boundaries; a perpetrator could evade a court order or warrant simply by leaving the state, requiring the injured party to go to additional time and expense to enforce its legal rights.

To address those shortcomings, the new DTSA provides that a person may bring a civil action in federal court, under federal law, against someone who improperly acquired or disclosed that person’s trade secret. The new law also provides more nimble remedies. In addition to injunctive relief and an award of damages, the statute provides that the court may award unjust enrichment (defendant’s profits), a reasonable royalty for unauthorized use, double damages for willful and malicious theft, and reasonable attorney fees to the prevailing party upon a showing of bad faith or willful misconduct.

Notably, the DTSA provides a new form of relief, an ex parte seizure order, which instructs law enforcement to seize stolen property and bring it into the custody of the court until the parties can be heard. The seizure order is available in the event a temporary restraining order is justified but the wrongdoer is likely to evade the restraining order, destroy evidence, or otherwise refuse to comply. To obtain a seizure order, the applicant must provide security and must not have publicized the requested seizure. If the seizure is wrongful or excessive, the accused party has a claim, unlimited by the posted security, against the party who requested the order.

If you suspect that a former employee, a competitor or anyone else took valuable company secrets, please consult immediately with counsel about how to investigate, plug the leak and regain control over the information. Failure to take prompt action following discovery of possible misappropriation will reduce your chances of getting injunctive relief

If you have any questions about the content of this alert, please contact a key contributor.

Key Contributors

Todd A. Hanchett
Steven T. Lovett
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