What You Need to Know About the Federal Defend Trade Secrets Act

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Article By: Marc Newman

A Leading Commercial Litigation Attorney in Michigan

What You Need to Know About the Federal Defend Trade Secrets Act

Published on: January 22, 2021
federal defend trade secrets act


Many companies possess valuable trade secrets.

Trade secrets can provide your business with an edge over competitors.

However, if your secrets are leaked or misappropriated by your competition, it can cause serious harm to your business, so maintaining the secrecy of your trade secrets should be a priority.

Trade secrets drive innovation, investment, and economic growth. To protect them, the Defend Trade Secrets Act (DTSA), established in 2016, created the first single uniform cause of action for trade secret misappropriation nationwide.

What Is the FederalDefend Trade Secrets Act (DTSA)?

The Defend Trade Secrets Act federalized trade secret law. The DTSA made it possible for trade secret owners to file civil lawsuits regarding trade secret misappropriation in federal court.

Any company possessing a trade secret related to goods or services intended for use in foreign or domestic commerce benefits from the DTSA.

What Is the Purpose of the DTSA?

Theft of trade secrets costs the United States economy between $180 billion and $540 billion each year. For companies prioritizing their trade secrets’ secrecy, planning for trade secret litigation increasingly became a routine part of the business.

Before the enactment of the DTSA, states handled trade secret litigation. The problem fell where companies doing business in multiple states enjoyed varied trade secret protection from state to state. Some states offer minimal trade secret protection, while other states offer companies sufficient recourse if misappropriation occurs. The definition of “trade secrets” varies from state to state. More confusingly, different statute of limitations laws apply, and the remedies available to aggrieved parties are inconsistent.

The federal trade secrets act created a uniform body of federal trade secret misappropriation laws and established jurisdiction for these lawsuits to be heard in federal court.

Although the DTSA does not preempt existing state laws regarding trade secrets, it provides harmed parties the opportunity to file suit in federal court—an attractive feature for companies with a business presence in multiple states nationwide.

How Does the DTSA Define Trade Secret and Misappropriation?

The DTSA provides a uniform definition of both the terms “trade secret” and “misappropriation.”

Under the DTSA, a trade secret includes numerous types of information, such as “patterns, plans, compilations, program devices formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes” that

  • The owner has taken reasonable measures to keep secret; and
  • Have independent economic value because of their secrecy.

By uniformly yet vaguely defining a trade secret, the DTSA eliminates the variation regarding the definition of trade secret existing from state to state. Additionally, the definition is intentionally broad to protect a wide variety of proprietary information.

Additionally, the Defend Trade Secrets Act defines misappropriation as

  • The acquisition of a trade secret by “improper means,” including “theft, misrepresentation, bribery, breach or inducement of breach of a duty to maintain secrecy or espionage through electronic or other means”; or
  • The disclosure or use of a trade secret by someone who used improper means to acquire it or knew that the secret was improperly or mistakenly acquired.

However, misappropriation does not include reverse engineering, independent derivation, or any other lawful means of acquisition.

Why Is the DTSA Important?

A trade secret gives your business an advantage over competitors by setting your business, product, or service apart from the rest.

While trademarks and copyrights offer registration protection, trade secrets remain somewhat vulnerable as no formal registration process exists with the government.

The only way to protect a trade secret is by keeping it secret. Without any efforts to maintain a trade secret’s secrecy, your business’s competitive advantage dramatically diminishes.

How Does the DTSA Protect Trade Secrets?

A provision of the DTSA behaving as a civil seizure mechanism operates as a tool for a trade secret owner to protect their secret while litigation is pending. Upon filing an ex-parte application, the court may “issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”

If granted, the seizure order allows a company to prevent further use and dissemination of the trade secret while litigation of the claims under the federal trade secrets act continues. Courts grant seizure orders only in extraordinary circumstances, and the trade secret owner possesses the burden of proof to establish the basis for the order.

How Does the DTSA Affect Nondisclosure Agreements?

As an employer, you need to take specific steps under the DTSA to protect yourself against an employee misappropriating your trade secrets.

All nondisclosure agreements provided to employees must include a notice of immunity provision. The notice provides information to employees about trade secret disclosure circumstances that do not violate the nondisclosure agreement. Under the DTSA, the notice’s absence from a nondisclosure agreement prevents the employer from recovering exemplary damages and attorney fees from the employee or independent contractors.

Therefore, as an employer, it’s crucial that you include language in a nondisclosure agreement providing information regarding trade secrets and confidentiality.

Remedies

The DTSA offers trade secret owners traditional remedies. These traditional remedies include injunctive relief, compensatory and exemplary damages, and attorney fees.

Compensatory damage awards provide for the actual loss and unjust enrichment caused by the trade secret’s misappropriation.

Special circumstances may result in an exemplary damages award. These special circumstances include misappropriation deemed to be willful and malicious.

Exemplary damages award two times the compensatory damage award. When exemplary damages are awarded, the court also grants attorney fees requests. Attorney fee awards may also be granted in situations where a party files a misappropriation claim in bad faith.

Contact Us

Trade secret litigation is a highly complex and ever-evolving area of law. The attorneys at The Miller Law Firm have decades of experience litigating complex matters ranging in the low six figures to hundreds of millions of dollars. Our legal team possesses extensive knowledge of federal and state trade secret law to defend your rights against your trade secrets’ misappropriation.

Additionally, retaining a qualified attorney to understand your employees’ responsibilities with respect to trade secrets protects your right to recovery under the DTSA. Many businesses have trade secrets and must proactively consider safeguarding their trade secrets and advantageously utilizing the DTSA. Contact our legal team to discuss your business with us today.

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