Third Time's the Charm: What Every Business Should Know about the Federal Defend Trade Secrets Act

Posted By Godwin Bowman & Martinez || Apr 21, 2016

Hailed as a "safeguard for American ingenuity and businesses," after three failed attempts, 2016 may be the year that the federal Defend Trade Secrets Act (DTSA) becomes a law. This landmark legislation, which is likely to pass with robust bipartisan support, creates a federal civil cause of action for trade secrets misappropriation. If passed, DTSA will protect all four branches of intellectual property rights - trade secrets, patents, trademarks, and copyright – and will supplant the state trade secret statutes currently in existence in 48 states, including Texas.

During the first attempt to pass this legislation in 2013, the House reviewed the Private Right of Action Against Theft of Trade Secrets Act (H.R. 2466), while the Senate evaluated the Future of American Innovation and Research Act (S. 1770). Both bills died in Committee. In 2014, Congress tried again - the House introduced the Trade Secrets Protection Act (H.R. 5233), and the Senate introduced the Defend Trade Secrets Act of 2014 (S. 2267). Again, the bills didn't make it out of Committee.

Not giving up, in 2015, the congressional leaders in the House and the Senate, including Senators Orrin Hatch (R-UT), Christopher Coons (D-DE), and Representative Doug Collins (R-GA), introduced parallel House Resolution 3326 and Senate Bill 1890, breathing new life into a federal trade secret statute. On April 4, 2016, the Senate passed the DTSA bill with a vote of 87-0. The House version is awaiting a vote with 127 on-the-record supporters, which foreshadows likely passage.

The recent high-profile cases of corporate espionage are probably the reason behind the DTSA's advancement in Congress in 2016, since the statute seeks to add civil provisions to the Chapter 90 of the Economic Espionage Act, which currently has only criminal penalties.

One of the salient features of the DTSA is a provision that allows an ex parte seizure of property or instrumentalities of trade secret theft. Additionally, the DTSA grants relief for an injunction or damages at the conclusion of the action, and includes amended definitions of "misappropriation" and "improper means." The Senate Judiciary Committee also approved an amendment to the DTSA that provides that a court may grant an injunction to prevent any actual or threatened misappropriation of a trade secret, provided that the injunction "does not prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows." The language appears to address the inevitable disclosure doctrine, which originated as an exception, but has been used and abused by trade secret plaintiffs far beyond its intended scope and shape.

While many of the provisions in the House and the Senate versions of the DTSA are identical, the Senate version has four additional provisions: (1) a whistleblower immunity provision; (2) a shorter three-year statute of limitations; (3) a lower exemplary damages multiplier of two times actual damages rather than three times; and (4) increased criminal penalties for a violation of the Economic Espionage Act. President Obama has already indicated he would sign the Senate's version of the Bill with the four additional provisions. Stay tuned to see if the third time's the charm for the DTSA and which key provisions will make it into the final version. We will be following closely to see which of these provisions will end up in the final Defend Trade Secrets Act of 2016.

Leiza DolghihMichael HolmesLeiza Dolghih is a Senior Attorney in Godwin Bowman & Martinez's Unfair Competition, Trade Secrets and Copyright Section. She has over a decade of experience in commercial litigation and has handled multiple temporary restraining order and temporary injunction hearings in trade secrets lawsuits.

Michael A. Holmes is an Associate in Godwin Bowman & Martinez's Commercial Litigation section. He has a broad range of experience in Business, Employment, Securities, Financial Institutions, Energy, and Environmental disputes in state and federal court.

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