Federalizing Trade Secret Law – A Good Thing or Not?

The Defend Trade Secrets Act

This past May, the Defend Trade Secrets Act (“DTSA”) was signed into law by President Obama. This was the culminating reality of a long effort by members of both political parties to ensure that full federal protection is provided for business trade secrets and intellectual property.

Due to recent dramatic changes in patent law in the United States, more and more technology companies are relying on trade secrets and proprietary internal processes to increase company valuation and market share. Prior to the federal effort, the protection of trade secrets was governed by a patchwork of state laws around the country, including states that adopted the Uniform Trade Secrets Act (“UTSA”).

But, even these congruent state laws were found still to be inadequate to protect against foreign theft and cyber-hacking of valuable company secrets and confidential information. To address these issues, Congress enacted the DTSA, which extends the protections of the 1996 Economic Espionage Act.

Some legal experts believe that this is the most expansive effort on the part of the federal government to protect property rights since the 1946 passage of the Lanham Act, which provides protection for trademarks. Under the DTSA, companies can file a federal cause of action for misappropriation of their trade secrets.

Prior to DTSA, the only civil protection for trade secrets happened at the state level. However, passage of the DTSA does not subvert existing state protections, but will work alongside them. That said, the federal law does provide for ex parte seizures before commencement of any suit. This powerful tool for plaintiff companies departs from the UTSA and state law.

Considering the fact that there are already federal protections for trademarks, copyrights and patents, a federal initiative to protect trade secrets seems to be a logical next step.

So what does this mean for companies?

  • It means that companies are provided with broader access to the federal court system. This will enable companies to pursue misappropriation claims in federal court.
  • It means companies should update their existing trade secret and intellectual property policies and employee confidentiality agreements to take advantage of the various statutory remedies under the DTSA.
  • It means that violators can face stiff recourse and penalties and those plaintiffs who satisfy the strict requirements of DTSA can utilize law enforcement to seize stolen information without advanced notice to the defendant.
  • It means there will be civil and criminal immunity to whistleblowers that report violations of law requiring the disclosure of company trade secrets under certain circumstances.

If you have questions about how the DTSA applies to you or your company, please contact us or visit our website at www.jvllp.com.