Congress Passes Federal Trade Secrets Law

Miller & Martin PLLC Alerts | April 28, 2016

Author:

by Chris Parker and Jimmy Daniel

On April 27, 2016, the U.S. House of Representatives passed legislation that will effectively federalize trade secrets law. President Obama, a supporter of the legislation, has indicated he will sign the Bill, which previously passed in the U.S. Senate.

The Defend Trade Secrets Act ("DTSA") will allow companies to file civil lawsuits for trade secrets theft under the Federal Economic Espionage Act ("FEAA"). Currently, these types of cases are primarily litigated on the civil side through the state courts. Existing federal law only provides for criminal cases under the FEEA lodged by prosecutors -- a more lengthy process that provides employers with little short-term remedy.

The Bill has been heralded as long overdue and provides protections for businesses across the country from the growing threat of trade secrets theft by allowing for easier access to federal courts for activities that often cross state lines. The new legislation generally follows the Uniform Trade Secrets Act and should provide greater long-term predictability to disputes and lead to the creation of a federal common law of trade secrets with a much higher degree of uniformity. Significantly, access to federal courts should greatly facilitate the civil prosecution of trade secrets claims and may facilitate the handling of increasingly complex technology issues that arise.

The "ex parte seizure" provision of the DTSA has been the most controversial issue as the Bill has made its way through Congress. This provision will allow plaintiffs to ask courts to order law enforcement officials to seize any property "necessary to prevent the propagation or dissemination of the trade secret." This relief can be ordered by the court without a hearing, appearance or answer from the defending party. While a similar remedy is available under both the Copyright and the Lanham Acts in certain circumstances, proponents of the provision have trumpeted the need to prevent harm from quickly moving trade secrets. Critics have warned of potential abuse, particularly against small employees and individuals.  In an effort to address those concerns, Congress included a provision directing that such orders are only to be used in "extraordinary circumstances" and set forth requirements describing such circumstances. There is also a requirement that the party seeking such relief show with particularity what property is to be seized as well as proof that the target of the seizure order has actual possession of the property in question. Finally, the target of a seizure order can seek damages if the ex parte relief provision has been abused.

The Bill marks a significant turn in the provision of access to the federal courts for an increasingly common area of litigation that has long been troubled by differences imposed by the legal standards of different states. Significantly, the Bill does not pre-empt state laws already on the books. That is, the federal remedies are in addition to those that may be provided on a local level.  Unlike other types of intellectual property claims (such as copyrights and patents) that are explicitly mentioned in the U.S. Constitution, federal trade secret law derives its authority from the Commerce Clause and will co-exist with state level laws. The utilization of federal law should provide greater certainty to those parties litigating such claims. The DTSA also provides more litigation options to holders of trade secrets with the additional layer of federal protection.

Employers should review their processes and documentation concerning the maintenance of trade secrets in the workplace as it may now be easier to protect such assets in the courts. While recent decisions by Congress and the Supreme Court have made the enforcement of patents more difficult, the DTSA provides a new avenue for the protection of intellectual capital. Employers should take several steps to assure their assets are protected:

  • Review assets and identify trade secrets
  • Assess the value of the trade secrets
  • Identify threats to maintaining trade secrets
  • Implement clear procedures to secure trade secrets
  • Update employment agreements, confidentiality agreement and related policies (including BYOD policies
  • Review trade secret policies in exit interviews
  • Evaluate forensic policing options for trade secrets

As always, should you have any questions or would like further information on this new development, please contact Chris Parker or Jimmy Daniel.