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Going Federal: The Defend Trade Secret Act

Last week, President Obama made the Defend Trade Secret Act (or “DTSA”) official. The law went into effect on May 11, 2016, and will apply to all trade secret misappropriation that takes place on or after that date. What is the DTSA, and how does it change the trade secret battlefield?

The Former State of Trade Secret Law

(No Pun Intended)

Until now, trade secrets have been governed by state law. There are certain criteria that information must meet in order to qualify as a trade secret.  In Tennessee, trade secret information:

  • Must be secret (and subject to reasonable efforts to maintain its secrecy);
  • Must derive independent economic value from the fact that it is secret; and
  • Must not be readily ascertainable — by proper means — by other persons who can obtain economic value from its disclosure or use.

The Problem

Though many states’ trade secret laws are a result of their adoption of the Uniform Trade Secret Act (Tennessee’s version is outlined in Tenn. Code Ann. §§ 47-25-1701 through 47-25-1709), the state regulation of trade secrets can make things interesting. States have adopted different versions of the UTSA, so you can understand the complications that can arise in our digital world, where the Internet allows us to do business in multiple states: Where do you file a lawsuit if the trade secret owner is located in Tennessee and the trade secret misappropriator is located outside of Tennessee? Which state’s law should apply? Not only does it prolong litigation when the answers to these questions aren’t clear-cut (which makes litigation more expensive), but trade secrets claims are not treated consistently state by state. Enter the Defend Trade Secret Act  of 2016.

The Defend Trade Secret Act: A Summary

As reported in detail by Crain’s Detroit,  PatentlyO, and other publications, the Defend Trade Secret Act of 2016 (or “DTSA”) does the following:

  • Amends the Economic Espionage Act  to allow for owners of trade secrets to sue in federal court if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce;
  • Provides a detailed definition of what constitutes “misappropriation;”
  • Provides for a civil seizure remedy that would allow a court to physically seize the trade secrets (and/or the media on which the information is located) from an alleged misappropriator; and
  • Allows for potential employment limitations (such as restrictions on employment based on evidence of threatened trade secret misappropriation), while also providing a whistleblower protection provision that immunizes employees for confidential disclosure of a trade secret to the government (made under seal).

The Point: The Defend Trade Secret Act, which went into effect this month, is a win for trade secret holders everywhere. Its full effects, including its employment law implications, remain to be seen.