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Feds Provide Major Boost to Protection of Business Trade Secrets

Bilzin Sumberg Client Alert

Publication
May 10, 2016

By Philip R. Stein

President Obama is poised to sign the Defend Trade Secrets Act 2016 (“DTSA” or the “Act”), legislation that would fundamentally overhaul the decades-long tradition of state control of trade secrets lawsuits. DTSA, which amends the Economic Espionage Act, passed Senate review late last month. It would create a new federal cause of action for an entity engaged in interstate commerce (in other words, every business) that suffers the improper loss of a trade secret. Until now, trade secret litigation had been a creature of state law and state courts, but industry groups and IP attorneys lobbied hard for DTSA in an effort to make uniform the Nation’s approach to all intellectual property disputes.

The Act confers jurisdiction on federal courts to hear any case brought by the “owner of a trade secret that is misappropriated [] if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” The creation of a federal cause of action is the most significant expansion of the federal law of intellectual property since the Lanham Act in 1946. Notably, the Act dramatically increases the potential penalty for trade secret theft, now permitting aggrieved parties to recover the greater of $5 million or three times the value of the stolen property to the defendant, including costs saved by stealing, rather than developing, the materials. Trade secret theft remains a RICO predicate act, a powerful tool against entities engaged in serial trade theft. Indeed, the Act specifically discusses the baleful consequences of trade secrets pilfered by foreign actors and governments, and requires that the Director of the United States Patent and Trademark Office make bi-annual reports regarding the ongoing threat of trade secret theft.

Perhaps the most consequential aspect of the Act, though, is the right to seizure of stolen items. DTSA authorizes federal judges, “upon affidavit or verified complaint,” to issue ex-parte orders “providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” These super-injunctions are limited to circumstances where “an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another form of equitable relief would be inadequate,” or, put more simply, where “the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order.” Bypassing the standard TRO, these orders are more akin to warrant applications, requiring only that the applicant is likely to succeed in showing that a trade secret was taken, that speed is necessary, and no other means are capable of protecting the applicant’s interests. Upon such a showing, a court would issue a seizure order.

Such orders are extremely powerful tools to protect intellectual property. Not only do they amount to a preliminary finding of theft and liability under the Act, they permit federal marshals or local law enforcement to enter premises (even forcefully) and seize stolen property.

Once stolen materials are recovered, the legal remedies available are no less robust. A plaintiff may obtain injunctive relief in any form the Court deems reasonable, as long as the relief does not impermissibly prohibit a person from finding employment. Aggrieved parties may also recover actual damages and unjust enrichment; willful and malicious trade secret theft entitles the plaintiff to double damages.

The Act is a dramatic move in favor of protecting trade secrets, regardless of form or content. When enacted, DTSA will provide businesses with a deterrent against trade theft far more potent than has ever existed in federal law. Potential defendants should be forewarned: other than granting attorneys’ fees in cases of bad faith applications for seizure orders, the Act is overwhelmingly pro-plaintiff, and should be understood in the context of the federal government’s renewed interest in protecting American IP.

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Philip R. Stein

Philip R. Stein

Partner, Litigation Practice Group Leader
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