Federal Trade Secret Act Clears the Senate and Secures Support from the White House

April 7, 2016 Advisory

The U.S. Senate unanimously passed the Defend Trade Secret Act (DTSA, S. 1890) on Monday, April 4. The very next day the Obama administration expressed strong support for the DTSA, stating that the pending legislation would "provide businesses with a more uniform, reliable, and predictable way to protect their valuable trade secrets anywhere in the country." 

Trade secrets are currently protected by state law under the Uniform Trade Secrets Act (UTSA). Although the UTSA has been enacted in 48 states, the District of Columbia, and the U.S. Virgin Islands, state laws vary based on amendments made to the UTSA when adopted locally. As a result, obtaining a remedy for trade secret misappropriation, especially when multiple jurisdictions are involved, can be cumbersome, costly, and often ineffective. 

Unlike previous federal trade secret bills, the DTSA has widespread bi-partisan support, increasing the likelihood that the bill will become law and create a new private right of action for trade secret misappropriation. With such overwhelming support in the Senate and from the White House, the pressure is now on the House, where an identical bill (H.R. 3326) with 127 co-sponsors was referred to the Subcommittee on Courts, Intellectual Property, and the Internet in October. 

Last month, the Senate Committee on the Judiciary published its Committee Report on the DTSA. The Committee Report expresses the desire to keep the DTSA as closely aligned with the UTSA as possible. To that end, the bill tracks the UTSA’s definitions of "trade secret" and "misappropriation" and includes standard remedies of damages and injunctive relief. However, the DTSA includes significant differences, including the following: 

A Federal Trade Secret Claim: For the first time, litigants could sue in federal court under a federal private right of action to remedy trade secret misappropriation for trade secrets "related to a product or service used in, or intended for use in, interstate or foreign commerce." 

Ex Parte Seizure of Property: The DTSA expressly enables courts to order the seizure of property involved in the commission of the misappropriation. Ex parte seizures are one of the most distinguishing features of the DTSA and may be particularly attractive to plaintiffs who wish to ensure that their trade secrets are kept as secure as possible pending resolution of a matter. That said, the burden to obtain an ex parte seizure is high and the target of the seizure order has a civil remedy for damages in the event of a wrongful or excessive seizure. 

New Procedures for Protection of Electronic Data: The DTSA contains provisions designed to address trade secret protection in the digital era. For example, a motion for encryption can filed "at any time" to "encrypt any material seized or to be seized." The legislation further requires the Federal Judicial Center to develop recommended best practices relating to media storing the information, which may help establish a standard for protection of electronic data during trade secret litigation. 

While state law remedies will remain in place, the DTSA would modernize and enhance trade secret protection laws, providing more uniform protection for trade secret owners.