Passage of Defend Trade Secrets Act Provides Silicon Valley Companies New Trade Secret Enforcement Tools

When Congress passed the Defend Trade Secrets Act last week, legislators significantly expanded the tools available to Silicon Valley companies for addressing acts of trade secret misappropriation.  Previously, trade secrets law had been largely a matter of state law, and U.S. companies seeking to file a claim for trade secrets misappropriation had been limited to initiating a claim under the Uniform Trade Secrets Act, a uniform law adopted in all but two states.  With the passage of the new federal law, U. S. companies will not have the right to file trade secret misappropriation claims under federal law in federal court, provided that the trade secret was related to a product or service used in or intended for use in interstate or foreign commerce.  A copy of the text of the new law is available at the following link: https://www.congress.gov/bill/114th-congress/senate-bill/1890/text.

Obviously, the enactment of a federal trade secrets law alongside existing federal copyright, trademark and patent laws is a significant development that stands to broadly impact all Silicon valley companies.  However, what will the specific impact of the law be, beyond just the fact that companies will now be able to file trade secret cases in federal court?

According to The National Law Review, a key impact that will arise as a result of the enactment of the new law is that that litigants will now have more certainty as to the potential outcome of a case brought under the federal law, whereas previously litigants had to deal with the uncertainty of potentially divergent rulings pursuant to fifty (50) state jurisdictions.  The National Law Review also identified another benefit:  the definition of what constitutes a trade secret under the federal law may be broader than the definition adopted by the Uniform Trade Secrets Act, so the federal law may provide protection to a wider range of information.

In addition, a new feature of the federal law enables courts to issue orders for the seize of property in extraordinary circumstances "to prevent the propagation or dissemination of the trade secret that is the subject of the action."  According to The National Law Review, this new tool goes beyond what state trade secret laws provided previously.  The law provides that the test to grant such an order will be as follows:

(I) an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another form of equitable relief would be inadequate. . . . because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order;

(II) an immediate and irreparable injury will occur if such seizure is not ordered;

(III) the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered of granting the application and substantially outweighs the harm to any third parties who may be harmed by such seizure;

(IV) the applicant is likely to succeed in showing that--

(aa) the information is a trade secret; and

(bb) the person against whom seizure would be ordered--

(AA) misappropriated the trade secret of the applicant by improper means; or

(BB) conspired to use improper means to misappropriate the trade secret of the applicant;

(V)  the person against whom seizure would be ordered has actual possession of --

(aa) the trade secret; and

(bb) any property to be seize;

(VI) the application describes with reasonable particularity the matter to be seized and, to the extent reasonable under the circumstances, identifies the location where the matter is to be seized;

(VII) the person against whom seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person; and

(VIII) the applicant has not publicized the requested seizure.

Also unique to the federal law is a provision which protects whistleblowers and provides immunity from criminal or civil liability for confidential disclosure of a trade secret to the government or in a court filing if made "solely for the purpose of reporting or investigating a suspected violation of the law" or if "made in a complaint or other document filed in a lawsuit other other proceeding, if such filing is made under seal."  The federal law also specifically provides that an employee who files a lawsuit claiming retaliation by his or her employer for reporting a suspected violation of law may disclose the trade secret to his or her attorney and use the trade secret information in the court proceeding, providing the disclosure is made under seal and is not otherwise disclosed except pursuant to court order.

Employers should take note that they are now required to provide notice of this immunity in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.  Failure to comply with this requirement will preclude an employer from being awarded exemplary damages or attorneys fees against an employee to whom notice was not provided.  Thus, employers should review employee agreements and make appropriate changes to address this new notice requirement.

The Defend Trade Secrets Act does not preempt state trade secret laws, so plaintiffs now have the choice of whether to pursue relief under a state or federal law.  So, a key change arising from the passage of the legislation is that plaintiffs now have options.

How significant is this legislation?  According to Professor Eric Goldman of Santa Clara University in his column for Forbes, it is the "single most important intellectual property development since Congress enacted the America Invents Act in 2011."   I suspect that many patent attorneys might disagree with his assertion, as there is a prevailing view among most Silicon Valley patent attorneys I know that the Supreme Court's Alice Decision should be afforded that distinction.  However, I would concur with Professor Goldman that this is at least the most significant intellectual property legislation enacted by Congress since the American Invents Act.

Certainly, Silicon Valley companies should be pleased that Congress has seen fit to enhance the previously existing tools in their arsenal to protect their sensitive corporate trade secrets from misappropriation.  Trade secret misappropriation has always been perhaps the single biggest legal concern of all Silicon Valley companies, given the innovation coming out of Silicon Valley at any given time and the "migration" of employees from one Silicon Valley company to the next.   The enactment of a federal law to address these concerns makes a powerful statement about the protection of trade secrets that was never before achieved to quite the same degree.  That change alone is of huge significance to Silicon Valley.