The Defend Trade Secrets Act of 2016 marked a watershed moment in American trade secret law by creating the first federal civil cause of action for trade secret misappropriation. Before this legislation, businesses seeking to protect their confidential information had to rely entirely on state laws that varied in their provisions and interpretations. The DTSA provides a uniform federal framework with powerful remedies that allow companies to pursue trade secret theft cases in federal court regardless of where the misappropriation occurred.
Why Congress Enacted the DTSA
The modern economy depends heavily on information assets that often prove more valuable than physical property. As trade secrets became increasingly critical to competitive success, the patchwork of state laws proved inadequate for addressing theft that crossed state or international boundaries. Companies operating nationally needed consistent legal protections rather than dealing with different standards in different states when pursuing misappropriation claims.
The DTSA also responded to growing concerns about economic espionage, particularly by foreign actors targeting American companies' intellectual property. While criminal laws already addressed some forms of trade secret theft, the civil remedies under state law were seen as insufficient to protect businesses from sophisticated theft schemes. Federal jurisdiction provides access to courts experienced with complex commercial disputes and intelligence-related matters.
Key Provisions of the DTSA
The DTSA allows owners of trade secrets related to products or services used in interstate or foreign commerce to bring civil actions in federal court. The law defines trade secrets broadly, encompassing financial, business, scientific, technical, economic, or engineering information that the owner has taken reasonable measures to keep secret and that derives independent economic value from not being generally known.
Misappropriation under the DTSA includes acquisition of a trade secret by improper means, disclosure or use of a trade secret without consent by someone who used improper means to acquire it or knew it was acquired improperly, and disclosure or use by someone who breached a duty to maintain secrecy. The statute closely tracks the Uniform Trade Secrets Act adopted by most states, providing consistency between federal and state law standards.
The Ex Parte Seizure Remedy
Perhaps the most significant innovation in the DTSA is the ex parte seizure provision, allowing courts to issue orders seizing misappropriated trade secrets without prior notice to the defendant in extraordinary circumstances. This powerful remedy prevents defendants from hiding or destroying evidence before traditional litigation procedures can be completed. No comparable remedy exists under state trade secret laws.
Courts grant ex parte seizure orders only when specific statutory requirements are met. The applicant must show that a temporary restraining order would be inadequate because the defendant would evade, defy, or otherwise fail to comply with such an order. Additional requirements include demonstrating that immediate and irreparable injury will occur, that the harm to the applicant outweighs harm to the defendant and any third parties, and that the applicant is likely to succeed on the merits. The court must also find that the matter is described with reasonable particularity and that the defendant actually possesses the trade secret.
Injunctive Relief Under the DTSA
Beyond seizure orders, the DTSA authorizes courts to grant injunctions preventing actual or threatened misappropriation. These injunctions cannot prevent a person from entering into an employment relationship based solely on information the person knows, addressing concerns about employee mobility. However, injunctions can impose conditions on employment, such as prohibiting the person from working on projects where trade secret disclosure would be likely.
The duration of injunctive relief cannot exceed the period for which the trade secret would remain protectable absent misappropriation, plus any additional period necessary to eliminate any commercial advantage the defendant gained through misappropriation. This approach aims to restore the competitive balance that would have existed had the theft never occurred.
Damages and Attorney Fees
The DTSA provides comprehensive damage remedies. Plaintiffs can recover damages for actual loss caused by misappropriation plus unjust enrichment not addressed by the actual loss calculation. Alternatively, courts may impose liability measured by a reasonable royalty for unauthorized disclosure or use. Where willful and malicious misappropriation is proven, exemplary damages up to two times the compensatory damages may be awarded.
The statute authorizes recovery of reasonable attorney fees in two circumstances. Prevailing plaintiffs can recover fees when misappropriation was willful and malicious. Prevailing defendants can recover fees when the claim was made in bad faith or the motion to terminate an injunction was made or opposed in bad faith. This two-way fee shifting encourages meritorious claims while deterring frivolous litigation.
Whistleblower Immunity
The DTSA includes important immunity provisions protecting whistleblowers from liability when they disclose trade secrets to government officials or attorneys for purposes of reporting suspected legal violations. This immunity encourages reporting of illegal activity without exposing whistleblowers to trade secret misappropriation claims. The immunity extends to disclosures made in sealed court filings as part of retaliation lawsuits.
Employers must notify employees of this immunity provision in any contract or agreement governing trade secrets or other confidential information. Failure to provide this notice results in the employer being unable to recover exemplary damages or attorney fees against the employee in any trade secret action. This notice requirement ensures employees understand their rights while maintaining overall trade secret protections.
Relationship to State Law
The DTSA does not preempt state trade secret laws, meaning businesses can pursue both federal and state claims simultaneously. This parallel structure provides maximum flexibility in choosing litigation strategy. Some circumstances may favor federal court, while others may favor state court, depending on factors like procedural rules, judicial expertise, jury pools, and venue considerations.
Because the DTSA's definitions and standards closely track the Uniform Trade Secrets Act, much existing state law precedent remains relevant to federal claims. However, federal courts are developing their own body of DTSA case law that may diverge from state interpretations on some issues. Understanding both federal and state options helps businesses and their attorneys select the most advantageous forum for their particular disputes.