Employers May Now Protect Trade Secrets Under Federal Law

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”). The DTSA provides companies with a direct federal cause of action to enforce their trade secret rights, which was not previously available. The new law received broad bipartisan support from the House and Senate. Prior to the DTSA, trade secrets were governed by state law, which led to inconsistency in how they were protected and enforced. The new law creates a federal private cause of action for trade secret theft and misappropriation, which allows trade secret owners to bring their claims in federal court and pursue ex parte relief that will enable the federal judiciary to cross state lines and quickly address urgent situations. Of course, trade secret owners may still opt to sue under state law if they choose to do so.

A powerful and distinct feature of the DTSA is that trade secret owners now have the right to request—“in extraordinary circumstances”—that courts issue an order allowing law enforcement to seize stolen trade secrets without notifying the defendant. Thus, in the proverbial case of someone absconding with the “secret sauce,” the owner of the trade secret can petition the court to send out federal law enforcement to get it back! That said, a party seeking to obtain such relief must satisfy eight strict requirements, many of which are familiar from state law, like showing irreparable injury, likelihood of success on the merits, and balancing the harm to the parties. One notable new requirement is that the applicant for the seizure must demonstrate that “the applicant has not publicized the requested seizure.” The applicant must also show that the trade secret would be destroyed or otherwise hidden if the defendant had notice of the action.

Overall, the DTSA should provide clarity for businesses, specifically those that operate across state lines, who now have a well-defined and clear path to federal court. This clear path will allow trade secret owners to move quickly to prevent the dissemination and use of their property by avoiding the hurdles of proceeding through state courts. In an age where trade secrets have evolved far beyond the old “customer list” kept in the boss’s drawer, the DTSA should prove an effective tool for safeguarding this form of intellectual property.

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Post by Mark Brookstein

Focusing on commercial litigation and employment law, Mark Brookstein enjoys a broad and diverse practice. In addition to litigating contract, real estate, business torts, employment and other commercial matters, Mark regularly counsels businesses on matters ranging from risk management and best practices to regulatory compliance and internal investigations.

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