Posted by Henry M. Sneath, Esq. – Chair of the Intellectual Property Practice Group at Pittsburgh, Pa. law firm Picadio Sneath Miller & Norton, P.C. (PSMN® and PSMNLaw®). Mr. Sneath is also an Adjunct Professor of Law at the Duquesne University School of Law teaching Trade Secret Law, Trademark Law and the Law of Unfair Competition. He may be contacted at firstname.lastname@example.org or 412-288-4013. Website www.psmn.com or www.psmn.law.
The US Congress has passed the landmark Defend Trade Secrets Act of 2016 (DTSA) and it is set for the President’s signature. It will soon be law. See Link to DTSA Legislation here: https://www.congress.gov/bill/114th-congress/senate-bill/1890/text Trade Secret law has long been the province of the States, more or less exclusively, and except for criminal protections against trade secret theft and economic espionage, there has been no Federal civil law providing a federal damages remedy for such theft. Amended will be Crimes and Criminal Procedures – Title 18, Chapter 90, Section 1836 and the key provision is as follows:
“(1) IN GENERAL.—An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”
Congress has now added a civil remedy provision to Federal protection of Trade Secrets wherein prior Federal law only provided criminal sanctions. This has been described as a major new development in Federal IP law and will provide federal jurisdiction for Trade Secret Misappropriation cases. The law will NOT preempt nor change State laws and therefore actions will be brought in both federal and state court jurisdictions. Most states (48) have adopted a form of the Uniform Trade Secrets Act (UTSA) and actions can still be brought under those state statutes, but those statutes vary to some degree. The DTSA is very similar to the UTSA based state court statutes, but there will be differences depending on the state jurisdiction from which cases are brought or removed. DTSA will apply to any acts of trade secret misappropriation that take place AFTER the act is signed into law (not retroactive). The Statute of Limitations will be 3 years according to the actual text linked above, but some commentators have stated that it is 5 years (we will need to check to get accurate information on the SOL and will follow up).
The DTSA contains an important and somewhat controversial “Civil Seizure” provision which renders it different from most state laws and which reads:
“(i) APPLICATION.—Based on an affidavit or verified complaint satisfying the requirements of this paragraph, the court may, upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”
This provision is controversial because it can be ordered by a court ex-parte. By amendment, the words “but only in extraordinary circumstances” were added to attempt to mollify some critics of this provision. However, there are some strict limitations to the ex-parte injunctions and a couple of them are below:
“(ii) REQUIREMENTS FOR ISSUING ORDER.—The court may not grant an application under clause (i) unless the court finds that it clearly appears from specific facts that—
“(I) an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another form of equitable relief would be inadequate to achieve the purpose of this paragraph 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.”
Such ex-parte injunctions must be very specific and the court must go to great lengths not to overreach or to punish through publicity an accused wrongdoer during the period of seizure. There are other typical requirements for injunctions like posting of security and careful management of the seized materials, and the accused wrongdoer has a right of action back against the claimant if the seizure turns out to be wrongful or excessive.
In an action for misappropriation, a court may order injunctive relief and may
“(i) (I) damages for actual loss caused by the misappropriation of the trade secret; and
“(II) damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss; or
“(ii) in lieu of damages measured by any other methods, the damages caused by the misappropriation measured by imposition of liability for a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret;
“(C) if the trade secret is willfully and maliciously misappropriated, award exemplary damages in an amount not more than 2 times the amount of the damages awarded under subparagraph (B); and
“(D) if a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, award reasonable attorney’s fees to the prevailing party.”
It is unclear as to how this bill will be enforced against foreign Trade Secret theft, or if there will even be jurisdiction under this act for such claims. We will follow up on that issue in future posts. See the Senate and House reports below which contain a substantial amount of background legislative history and commentary. Contact us for additional information. We will continue to study this new law and report to our readers.
Here is a link to the US Senate report on the bill: https://www.congress.gov/congressional-report/114th-congress/senate-report/220/1
Here is a link to the US House report on the bill: https://www.congress.gov/congressional-report/114th-congress/house-report/529/1
Henry M. Sneath, Esquire – 412-288-4013 or email@example.com
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