The impact of the new Defend Trade Secrets Act, part one

By Evan Rothstein | May 22, 2016

On May 11, President Obama signed into law the Defend Trade Secrets Act (DTSA), which is one of the most noteworthy expansions of federal intellectual property law since at least the American Invents Act (AIA) in 2011, and perhaps since the Lanham Act of 1946. Trade secrets can be among a company's most important intellectual property assets, and for good reason -- trade-secret law enables a company to maintain their proprietary and valuable information shielded from the public eye in a manner that often forms the basis of a company's competitive advantage.

Over the next two weeks, we will look at the most important aspects of the new bill in a two-part series. Part one focuses on the creation of a uniform law and required immediate changes to any contracts for the protection of trade secrets and confidential information. Part two next week will focus on changes to remedies available for trade-secret thefts.

Creation of a federal cause of action

Currently, a patchwork of state laws govern the trade-secret legal regime and what to do in the instance of misappropriation. All states except Massachusetts and New York have enacted the Uniform Trade Secrets Act (UTSA), but differences exist amongst the versions enacted in various states and how a particular state's court systems handle actions brought before them. Moreover, New York and Massachusetts still rely on different sources of law for trade-secret-like claims, including a judge-made regime based on common law. As such, companies who bring trade-secret litigation in different states face a hodgepodge of legal standards, discovery rules, and procedural requirements.

Under the DTSA, however, litigants now will have a uniform national law -- one that grants direct access to federal court. Although federal court often is considered preferable to state court on the perceived sophistication and greater resources of the federal bench, litigants should carefully evaluate which court is best suited to achieve their goals. Trade-secret plaintiffs whose top priority is to secure an injunction quickly may still be better off in state court, where the average time from filing a case to an injunction order can be faster -- especially in temporary restraining order situations.

Importantly, the DTSA does not eliminate or preempt existing state laws. The DTSA was largely modeled after the UTSA, and provides essentially the same remedies as under state law. Thus, it remains to be seen how much state law will continue to impact trade-secret law post enactment of the DTSA.

Need to incorporate whistleblower immunity provisions in contracts

The DTSA provides immunity for whistleblowers who disclose trade secrets in confidence to the government or attorneys solely for the purpose of reporting or investigating suspected violations of the law. The law requires employers to notify their employees in "any contract or agreement with an employee that governs the use of a trade secret or other confidential information" that it has entered into or modified after the DTSA is enacted, and of their immunity in such circumstances. Employers will need to make sure immediately that their employment contracts (or attendant policies referenced and incorporated into such contracts) contain the proper notifications as required by the DTSA.

Evan Rothstein is an attorney with Brownstein Hyatt Farber Schreck.