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Defend Trade Secrets Act
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| Long title | An Act to amend chapter 90 of title 18, United States Code, to provide Federal jurisdiction for the theft of trade secrets, and for other purposes |
|---|---|
| Acronyms (colloquial) | DTSA |
| Enacted by | the 114th United States Congress |
| Effective | May 11, 2016 |
| Citations | |
| Public law | Pub. L. 114–153 (text) (PDF) |
| Statutes at Large | 130 Stat. 376 |
| Legislative history | |
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The Defend Trade Secrets Act of 2016 (DTSA) (Pub. L. 114–153 (text) (PDF), 130 Stat. 376, enacted May 11, 2016, codified at 18 U.S.C. § 1836, et seq.) is a United States federal law that allows an owner of a trade secret to sue in federal court when its trade secrets have been misappropriated.[1] The act was signed into law by President Barack Obama on May 11, 2016.[1] It underscored Congress's desire to align closely with the Uniform Trade Secrets Act, which had been adopted in some form in almost every U.S. state. Technically, the DTSA extended the Economic Espionage Act of 1996, which criminalizes certain trade secret misappropriations.[2]
The law also grants legal immunity to corporate whistleblowers.[2]
After the DTSA's passage by the Senate, Forbes magazine called the law the "Biggest Development in [Intellectual Property] in Years".[2]
Notable cases
[edit]The first judicial decision under the DTSA was Henry Schein, Inc. v. Cook,[3] in the United States District Court for the Northern District of California, on June 10, 2016.[4] In that decision, U.S. District Court Judge Jon S. Tigar granted the first temporary restraining order under the DTSA prohibiting an ex-employee from soliciting customers of the plaintiff.[4]
The first verdict under the act came in Dalmatia Import Group, Inc. v. FoodMatch Inc. et al.,[5] on February 25, 2017.[6] In that case, a federal jury awarded Dalmatia $2.5 million for misappropriation of trade secrets, trademark infringement and counterfeiting,[6] $500,000 of which was allocated to the DTSA claim.[7] The trade secrets claim was based on Foodmatch's misappropriation of Dalmatia's fig jam recipe.[8]
References
[edit]- ^ a b Korte, Gregory (May 11, 2016). "Obama signs trade secrets bill, allowing companies to sue". USA Today.
- ^ a b c Goldman, Eric (April 28, 2016). "The New 'Defend Trade Secrets Act' Is The Biggest IP Development In Years". Forbes.
- ^ Henry Schein, Inc. v. Cook, 191 F.Supp. 3d 1072 (N.D. Cal. 2016).
- ^ a b Pearce, T. Vann Jr.; Ingles, Matthew (June 30, 2016). "California Federal Court First to Rule Under New Defend Trade Secrets Act of 2016". Trade Secrets Watch. Orrick, Herrington & Sutcliffe LLP. Retrieved June 7, 2017.
- ^ Dalmatia Import Group, Inc. v. FoodMatch Inc. et al., no. 16-cv-02767 (E.D. Pa. Feb. 24, 2017).
- ^ a b "Dalmatia Import Group, Inc. v. FoodMatch Inc. et al". Trade Secrets Institute. Retrieved June 7, 2017.
- ^ Songer, Michael J.; Tehrani, Ali (April 7, 2017). "The First DTSA Verdict: $500,000 for Misappropriation of a Fig Spread Recipe". Trade Secrets Trends. Retrieved June 7, 2017.
- ^ Graham, Scott (February 27, 2017). "Jam Maker Jars $2.5M Verdict in Trade Secrets Case". National Law Journal. Retrieved June 7, 2017.
External links
[edit]- S. 1890 at congress.gov
Defend Trade Secrets Act
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Legislative History
Origins and Pre-DTSA Landscape
Prior to the enactment of the Defend Trade Secrets Act, trade secret protection in the United States relied primarily on state laws, which evolved from common law principles imposing liability for improper acquisition or disclosure through breaches of confidence. In 1979, the National Conference of Commissioners on Uniform State Laws drafted the Uniform Trade Secrets Act (UTSA) to promote uniformity by defining trade secrets as information deriving economic value from secrecy and subject to reasonable efforts to maintain confidentiality, while establishing civil remedies for misappropriation via improper means or breach of duty.[9] By 2016, forty-eight states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands had adopted the UTSA or substantially similar statutes, with New York remaining the primary holdout under common law and North Carolina enacting a comparable law.[10] These state frameworks allowed owners to seek injunctions, damages, and attorney fees, but variations persisted in elements like the scope of "improper means," inevitable disclosure doctrines, and statutes of limitations, leading to forum shopping and unpredictable outcomes in multi-jurisdictional disputes.[11] At the federal level, the Economic Espionage Act of 1996 (EEA) introduced criminal penalties for trade secret theft, targeting both domestic economic espionage under 18 U.S.C. § 1832 and foreign-directed theft benefiting a foreign government or entity under § 1831, with punishments including fines up to $5 million for organizations and imprisonment up to 15 years for espionage-related offenses.[12] The EEA defined trade secrets broadly to encompass financial, business, scientific, technical, economic, or engineering information with independent economic value from secrecy, but it offered no private civil cause of action, limiting enforcement to government prosecutors and leaving victims dependent on state courts for compensatory relief.[13] The pre-DTSA landscape exposed limitations in addressing rising threats from cyber intrusions, employee mobility across states, and international competition, where state laws struggled with extraterritorial enforcement, inconsistent evidentiary standards, and inadequate deterrence against sophisticated actors unamenable to state jurisdiction.[14] Businesses advocated for federal civil jurisdiction to enable nationwide service of process, uniform standards, and tools like ex parte seizures, arguing that state-only remedies insufficiently protected innovation in an interconnected economy amid documented increases in misappropriation incidents.[11]Enactment in 2016
The Defend Trade Secrets Act (DTSA) was introduced in the Senate as S. 1890 on July 29, 2015, by Senator Orrin Hatch (R-UT), with Senator Chris Coons (D-DE) as a primary cosponsor, reflecting bipartisan support for establishing a federal civil remedy for trade secret misappropriation.[15] The bill garnered 65 cosponsors in the Senate, representing nearly two-thirds of its members, and addressed longstanding concerns over inconsistent state-level protections by amending the Economic Espionage Act of 1996 to grant federal district courts exclusive original jurisdiction.[1] Following committee review by the Senate Judiciary Committee, which issued a favorable report (S. Rept. 114-220), the measure advanced without amendments.[16] On April 5, 2016, the Senate passed S. 1890 unanimously by a vote of 87-0, underscoring broad consensus on the need for uniform federal standards to combat trade secret theft, particularly amid rising economic espionage threats.[17] The bill then moved to the House of Representatives, where a companion version (H.R. 3320) had been introduced earlier, but the House ultimately took up the Senate bill. On April 27, 2016, the House approved it overwhelmingly by a vote of 410-2, with minimal debate focused on procedural safeguards like whistleblower protections.[1] This near-unanimous passage in both chambers highlighted the legislation's alignment with business interests seeking stronger enforcement mechanisms without significant opposition from labor or civil liberties groups at the enactment stage.[18] President Barack Obama signed the Defend Trade Secrets Act into law on May 11, 2016, as Public Law 114-153, effective immediately upon enactment.[19][11] The act integrates into Title 18 of the U.S. Code (chapter 90), enabling trade secret owners to pursue civil actions in federal court for misappropriation occurring on or after that date, thereby supplementing rather than preempting state laws modeled on the Uniform Trade Secrets Act.[1] This federal overlay was positioned as a targeted response to jurisdictional fragmentation, with proponents citing annual U.S. losses from trade secret theft estimated in the hundreds of billions, though such figures derive from government and industry assessments prone to aggregation challenges.[16]Core Provisions
Trade Secret Definition and Misappropriation Standards
The Defend Trade Secrets Act (DTSA), enacted on May 11, 2016, defines a trade secret in 18 U.S.C. § 1839(3) as encompassing all forms and types of financial, business, scientific, technical, economic, or engineering information, including but not limited to patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, regardless of whether they are tangible or intangible or how they are stored, compiled, or memorialized.[20] To qualify, the information must satisfy two core criteria: (A) the owner has taken reasonable measures to maintain its secrecy, such as through nondisclosure agreements, restricted access, or physical and digital safeguards; and (B) the information derives independent economic value, actual or potential, from not being generally known to or readily ascertainable by proper means by others who could obtain economic benefit from its disclosure or use.[20] This definition aligns closely with that of the Uniform Trade Secrets Act (UTSA), adopted by most states, to promote uniformity in trade secret law while extending federal jurisdiction to cases involving interstate or foreign commerce.[20] Under the DTSA, misappropriation is outlined in 18 U.S.C. § 1839(5) and occurs through either: (A) the acquisition of another's trade secret by a person who knows or has reason to know that it was obtained via improper means; or (B) the disclosure or use of another's trade secret without express or implied consent by someone who, at the time, knew or should have known the secret was acquired improperly, derived from someone under a secrecy duty, or obtained in breach of such a duty.[20] "Improper means" explicitly includes theft, bribery, misrepresentation, breach or inducement of a breach of a confidentiality duty, or espionage, but excludes lawful methods like reverse engineering, independent derivation, or basic research from publicly available information.[20] This standard requires plaintiffs to demonstrate not only secrecy and value but also the defendant's knowledge or reason to know of impropriety, emphasizing intent or recklessness over mere negligence, which distinguishes DTSA claims from some state variations that may impose stricter liability.[20] Federal courts applying these standards have clarified that "reasonable measures" for secrecy must be context-specific and proportional to the information's value, such as employee training on confidentiality or segmented access controls, while economic value can be shown through evidence of competitive advantage lost via disclosure.[11] Misappropriation claims often hinge on circumstantial evidence, like an employee's sudden departure with proprietary files or a competitor's rapid replication of unique processes, but defendants may rebut by proving independent development or public sourcing.[20] The DTSA's framework thus prioritizes verifiable secrecy efforts and culpable acquisition or use, fostering predictability in litigation without preempting state remedies.[21]Civil Remedies and Damages
The Defend Trade Secrets Act (DTSA), codified at 18 U.S.C. § 1836(b), authorizes owners of misappropriated trade secrets to pursue civil remedies in federal court, including injunctive relief and monetary damages, when the secret relates to interstate or foreign commerce.[2] Courts may issue injunctions to prevent actual or threatened misappropriation, but such orders must not prohibit a person's legitimate employment or otherwise unduly restrict economic activity, reflecting congressional intent to balance protection with labor mobility.[2] Injunctive relief requires evidence of threatened misappropriation and mandates that recipients maintain reasonable secrecy measures; royalties may substitute for injunctions if ongoing use is inevitable but the secret's value persists.[2] These provisions align closely with the Uniform Trade Secrets Act but apply federally, enabling nationwide enforcement without reliance on state courts.[11] Compensatory damages under the DTSA compensate for the actual loss suffered by the owner due to misappropriation or the defendant's unjust enrichment where actual loss is unprovable, with courts awarding the greater amount.[2] If neither metric applies—such as when misappropriation halts before commercialization—a reasonable royalty for the unauthorized use may be imposed, calculated based on hypothetical arm's-length licensing terms.[2] For willful and malicious misappropriation, courts may award exemplary damages up to twice the compensatory amount, serving as a deterrent against intentional theft.[2] [11] Prevailing parties may recover reasonable attorney's fees and costs under specific conditions: if the claim or defense was brought in bad faith, if a motion to terminate an injunction succeeds, or if willful and malicious misappropriation triggers exemplary damages.[2] However, employers forfeit exemplary damages and attorney's fees against employees disclosing trade secrets in confidence for reporting violations of law, unless notice of DTSA whistleblower immunity is provided in agreements like nondisclosure contracts executed after May 11, 2016.[2] These limitations aim to encourage internal reporting without chilling legitimate protections.[22] All civil actions carry a three-year statute of limitations from discovery of the misappropriation, with damages accruing only from the misappropriation date.[2]Procedural Tools and Limitations
The Defend Trade Secrets Act (DTSA) establishes several procedural mechanisms to facilitate civil enforcement of trade secret rights in federal court, including ex parte civil seizure orders designed to prevent the propagation or dissemination of allegedly misappropriated trade secrets.[2] These orders may be issued without prior notice to the defendant only in extraordinary circumstances, where an ordinary injunction would be ineffective, the defendant is likely to destroy, move, hide, or falsify evidence upon receiving notice, and the plaintiff lacks adequate alternative remedies.[23] Courts must further find that the order will not harm the legitimate interests of third parties, that the plaintiff has not publicized the trade secret, and that the requested seizure is narrowly tailored to preserve evidence without broader disruption.[24] The process requires an affidavit or verified complaint detailing specific facts, and post-seizure hearings must occur within 14 days, with provisions for expedited discovery and potential encryption of seized materials to protect sensitive data.[2] Compliance with these stringent criteria is mandatory, as non-compliance can result in wrongful seizure claims against the plaintiff, including damages for lost profits, costs, and attorney fees.[25] Injunctive relief under the DTSA serves as a primary procedural tool to halt ongoing or threatened misappropriation, conditioned on findings of actual or imminent harm and the inadequacy of other remedies at law.[2] Courts may condition injunctions to avoid unduly restricting a defendant's legitimate competition or employment, such as by prohibiting only the use of specific misappropriated information rather than barring employment altogether, provided the defendant does not rely on the trade secret in the new role.[11] Remedies like injunctions are available alongside monetary awards, but exemplary damages and attorney fees are limited to cases of willful and malicious misappropriation.[26] Key limitations temper these tools, notably a mandatory notice provision requiring employers to inform employees, contractors, and consultants of whistleblower immunity protections in any contract governing trade secret use.[27] This notice, effective since the DTSA's enactment on May 11, 2016, must either quote the immunity clause verbatim or reference a policy document providing equivalent information, granting immunity for disclosures made in confidence to government officials or attorneys for reporting suspected violations or in sealed court filings under seal.[28] Non-compliance bars recovery of exemplary damages or attorney fees against parties who qualified for immunity, though it does not affect other remedies.[29] The DTSA imposes a three-year statute of limitations for civil claims, commencing from the date the misappropriation is discovered or reasonably should have been discovered through diligence.[2] This accrual rule applies uniformly in federal proceedings, overriding varying state limitations where applicable, and courts have interpreted "discovery" to include constructive notice via public sources like internet searches.[30] Additionally, federal jurisdiction requires a nexus to interstate or foreign commerce, and courts must take measures to protect trade secret confidentiality, such as sealing pleadings that identify the secrets at issue.[2]Judicial Application and Impact
Rise in Federal Litigation Post-2016
Following the enactment of the Defend Trade Secrets Act (DTSA) on May 11, 2016, which established a federal civil cause of action for trade secret misappropriation, the volume of trade secret cases filed in U.S. federal district courts rose substantially. Prior to the DTSA, annual federal trade secret filings averaged approximately 900 cases from 2009 to 2016.[31] In the first full year after enactment, 2017, filings increased to 1,134 cases, reflecting a jump of about 26 percent.[31] This surge is attributed to the DTSA's provision of uniform federal jurisdiction, allowing plaintiffs to bypass varying state laws and access federal remedies such as ex parte seizure orders, thereby incentivizing federal forum selection.[32] [33] The upward trend persisted, with federal trade secret case filings stabilizing at elevated levels thereafter. From 2017 through 2019, annual filings averaged around 1,400 cases, more than 50 percent above pre-DTSA norms.[34] By 2020, DTSA-specific claims constituted 73 percent of all federal trade secret cases, underscoring the Act's dominance in shifting litigation to federal courts.[35] This pattern held through the COVID-19 period, with filings remaining near 1,400 annually despite temporary disruptions, and totaling over 5,159 DTSA claims by May 2024.[36] [32] In 2023, 1,203 cases were filed, indicating a slight moderation but sustained high activity compared to pre-2016 baselines.[37]| Year Range | Approximate Annual Federal Trade Secret Filings | Notes |
|---|---|---|
| 2009–2016 | 900 | Pre-DTSA average[31] |
| 2017 | 1,134 | Initial post-DTSA surge[31] |
| 2017–2019 | 1,400 | Stabilized increase[34] |
| 2020–2022 | ~1,400 | Consistent volume[32] [38] |
| 2023 | 1,203 | Recent figure[37] |