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April 29, 2016

The Defend Trade Secrets Act

On April 27, 2016, the House overwhelmingly (410-2) passed the Senate version of The Defend Trade Secrets Act (“Act”), and the enrolled bill was sent to President Obama who has indicated he will sign it.

The Act has remarkably widespread bipartisan support, championed by trade groups such as the Chamber and NAM, multi-nationals, and the Administration. Even Jerrold Nadler (D-NY) is a chief co-sponsor and spokesman for the bill. It continues to be opposed by a large group of law professors who think the measure is “ill-advised,” lacks “empirical data,” overreaches, and will lead to confusion and reduce labor mobility.

The Act adds a fourth leg to the federal laws governing intellectual property (copyrights, patents and trademarks). For the first time, the Act confers federal court jurisdiction over trade secrets violations and authorizes a private civil cause of action in federal court for theft of trade secrets related to a product or service used in, or intended for use in, interstate or foreign commerce. No longer will enforcement be relegated solely to state court.

It amends and expands the existing Espionage Act, provides pathways to injunctive relief and monetary damages to preserve evidence and prevent disclosure, and creates remedies for theft similar to those for other intellectual property. It is meant as an umbrella over the patchwork yet largely effective state court remedies which remain intact under the statute.

Notably, it will now allow a novel remedy of a controversial ex parte order whereby a plaintiff fearful of the dissemination of trade secrets will be able to take proactive steps to have the government seize stolen secrets in the absence of any notice to defendant.

Lawmakers are convinced that the increased and sometime catastrophic thefts the last several years by domestic and foreign malefactors require these enhanced protections which also include fee-shifting provisions and double damages for willful violations. Yet, critics of the Act decry that it has no provisions to specifically address cyber-security threats or international espionage by foreign countries.

The Act creates unresolved issues concerning pendent jurisdiction of non-compete restrictions, which law will be applied (existing state law in the forum or a developing “federal” law), and applicable standards for seizure orders (perhaps analogous to necessary showings to obtain seizure orders in counterfeit trademark lawsuits).

Remarkably, the Act also includes the novel inclusion of a whistleblower immunity notice provision in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” If the employer fails to comply with this employee notice provision, it cannot avail itself of an award of exemplary damages or attorneys’ fees created in the statute.

The Act has been called the biggest development in intellectual property law in 30 years. Certainly, it is another tool in the business arsenal providing access to federal court without the required intervention of the Justice Department under prior law. It contains extremely broad provisions and awaits interpretation and implementation by the courts.


If you have any questions regarding The Defend Trade Secrets Act, please do not hesitate to contact us.