CDAS Client Alert: Federal Trade Secrets Law Provides Potent New Tool For Businesses In Online & Digital Media Space

Yesterday President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”), the culmination of several years of bipartisan efforts to federalize trade secret protection, placing it alongside the federal copyright, trademark, and patent statutes.  The DTSA – an extension of the Economic Espionage Act of 1996 – should be significant, generally, to businesses concerned about protecting competitively sensitive information from misappropriation by former employees, industrial spies, and foreign nationals.  It should prove particularly useful to those in the online and digital media space as an important tool in the prevention and remedying of the theft of software-based products.  The DTSA has strong support from the software industry, including from Microsoft, IBM, Adobe, Micron, and the Software Information Industry Association.  Here are three key takeaways from the passage of the DTSA:

Potential Uniformity of Law and Applicability to Software

Until now, civil trade secret protection was exclusively state-based, with 48 states adopting some form of statutory trade secret law, largely based on the Uniform Trade Secrets Act.  However, as many commentators have noted, the state-based approach has created a “patchwork” of laws that vary in many respects, including scope (for instance, Idaho’s statute specifically includes computer code whereas other states’ laws do not), remedies (some states do not offer certain types of injunctive relief), and statute of limitations periods.  The DTSA, while leaving state laws intact (as opposed to preempting them like the Copyright Act did), provides remedies that should be more uniform across the country, and should reduce the uncertainties associated with the unpredictable geography-based system currently in place.  The Electronic Espionage Act’s applicable definition of “trade secret” – which expressly includes “programs” and “codes” – is also broad enough to cover the valuable underpinnings of digital products.

Access to Federal Courts

The DTSA also opens the doors to the federal courthouse, as long as the trade secret at issue “is related to a product or service used in, or intended for use in, interstate or foreign commerce” – a requirement that is likely easy to satisfy in the world of digital products such as apps.  The DTSA  allows litigants to access a court system often seen as more qualified to handle complex intellectual property cases without having to find another jurisdictional “hook” (and having to bring state-law trade secret claims as “supplemental” claims).  This significantly streamlined access to the federal court system should provide trade secret owners with confidence that claims will be handled more uniformly and with a more predictable outcome, which is an advantage given the rise in trade secret theft by hackers, disgruntled employees, and foreign cyber-spies.

Ex Parte Seizure Provision

In addition to injunctive relief, actual damages, unjust enrichment remuneration, and in cases involving willfulness and bad faith, doubled damages and attorney’s fee awards, the DTSA includes a unique and powerful remedy: the ex parte seizure order.  If litigants satisfy certain standards, they can obtain seizure of property allegedly containing the stolen trade secrets (e.g., laptops, flash drives) without first giving notice to the putative defendants, reducing the risk that perpetrators will abscond with the data to another state or country, or delete, destroy, or otherwise propagate the information once they learn they have been caught.  No state trade secret law allows for such a remedy.  Some critics see this provision as susceptible to competitive abuse (particularly against former employees and small businesses), but the DTSA includes certain safeguards aimed at curbing inappropriate practices, such as limiting use of the tool to “extraordinary circumstances” and creating a cause of action for defendants to seek damages against plaintiffs for “wrongful or excessive seizure.”  These terms provide the groundwork for ensuring that this extreme remedy is utilized appropriately and achieves its goal of preventing the destruction or abuse of trade secrets in the hands of bad actors.

Conclusion

The ways in which this new law is interpreted by the various federal courts across the country will play out in the years to come, as it gives trade secret litigants a powerful new tool to combat trade secret theft.  The DTSA should provide additional relief to those in the ever-growing digital goods and services industries, from producers of apps to the pioneers of the newly resurgent virtual reality platforms, and those who otherwise rely on confidential and competitively valuable data, source code, and computer programs for their livelihoods.