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The Defend Trade Secrets Act Attempts to Unify United States Trade Secret Law

If enacted, the Defend Trade Secrets Act (DTSA) could be the most important change to U.S. trade secret law in decades.

Why have U.S. legislators proposed a bill concerning trade secret law?

Democratic Senator Christopher Coons of Delaware introduced the Defend Trade Secrets Act of 2014 (S. 2267) this past April.  The bill is cosponsored by Republican Senator Orrin Hatch of Utah.  The proposed bill would create a federal private cause of action for trade secret misappropriation.

Trade secret claims presently are governed by state law.  Forty-eight states have adopted some variation of the Uniform Trade Secrets Act (UTSA), with New York and Massachusetts being the exceptions.  Many states have modified the UTSA and apply its provisions differently. These variations can create inconsistencies in how states define and protect trade secrets.  For example, states have different definitions for “trade secret” and “misappropriation” and different statutes of limitations.

Proponents of the DTSA argue that it can unify U.S. trade secret law by providing universal definitions and standards, and a common body of precedent.  These changes could lead to greater predictability, stronger nationwide enforcement, and reduced costs and confusion as compared to navigating each state’s specific trade secret laws.  The DTSA also could provide access to the advantages of the federal court system such as prompt nationwide service of process.  Critics argue that the DTSA would not add uniformity to the trade secret landscape since plaintiffs still could pursue actions under individual state trade secret laws.

What are the key provisions of the DTSA?

Definitions.  The DTSA defines “misappropriation” as the acquisition of a trade secret by a person who knows or has reason to know the trade secret was acquired by improper means or the disclosure or use of a trade secret without express or implied consent.  “Improper means” includes: theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means, but does not include reverse engineering or independent derivation.

Preservation of Evidence.  The DTSA would permit courts to issue ex parte orders to preserve evidence, through, for example, copies of electronic storage media containing trade secrets, and seizure of computers and other property used to commit a trade secret violation.

Remedies.  The DTSA provides for both injunctive and monetary remedies.  A court may grant an injunction to prevent actual or threatened misappropriation, to require affirmative actions be taken to protect trade secrets, and, in exceptional circumstances where an injunction is inequitable, to condition ongoing use upon payment of a royalty.  The DTSA also allows an award of damages for actual loss caused by the misappropriation, plus damages for any unjust enrichment that is not addressed in computing damages for actual loss.  Alternatively, in lieu of damages measured by other methods, damages measured by a reasonable royalty may be awarded.  Further, the DTSA would permit an award of treble damages and reasonable attorneys’ fees for willful or malicious misappropriation, or reasonable attorneys’ fees for a bad faith claim of misappropriation.

Statute of Limitations. The bill sets a 5-year statute of limitations from the date the alleged misappropriation is, or should have been, discovered.  A continuing misappropriation constitutes a single claim of misappropriation.

Preemption.  The DTSA will not preempt state law, preserving for plaintiffs the freedom to pursue claims under state trade secret laws.

 

Will the DTSA become law?

It is too early to determine whether the DTSA will become law. The act currently enjoys bipartisan support in the U.S. Senate, and a companion bill was recently introduced in the House of Representatives.