Understanding the Defend Trade Secrets Act of 2016: "we're not in state court anymore".

• Author: Pizzi, Peter J.

This article originally appeared in the May 2016 Technology Committee newsletter.

ON May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 ("DTSA"), a powerful new statutory regime intended to bolster protections for U.S. trade secret holders. The statute will have an immediate impact on federal court practitioners, as it creates a private cause of action for the misappropriation of trade secrets and expressly confers jurisdiction of such actions to the U.S. federal district courts. The DTSA also contains a civil seizure mechanism through which an owner of a trade secret may apply to a district court for an order compelling the seizure of property necessary to prevent the dissemination of the trade secret. In this way, the DTSA seeks not only to harmonize the substantial and diverse body of state trade secret law, but also to equip trade secret holders with new tools to safeguard their intellectual property.

The statute owes its origins in part to the Justice Department's unsuccessful prosecution in United States v. Aleynikov, (1) in which the Second Circuit reversed the conviction of a Sergei Aleynikov, a former Goldman Sachs programmer, for theft of trade secrets, finding that proprietary computer code fell outside the scope of the then-existing federal statutory schemes because it was not "produced ... for interstate or foreign commerce." Aleynikov had allegedly uploaded Goldman Sachs high-frequency trading code to a server in Germany as he was leaving Goldman's employment for a Chicago hedge fund. In response to Aleynikov and related concerns about international and domestic "hacktivism," legislation was proposed to amend the Economic Espionage Act, and it is that amendment which President Obama signed into law earlier this month.

This article provides a brief overview of the DTSA and identifies the key provisions applicable to practitioners, employers, and private parties that work with or rely on trade secrets.

1. Private Cause of Action ([section] 1836)

   The DTSA provides for a private cause of action by an owner of a trade secret that is misappropriated, provided the trade secret "is related to a product or service used in, or intended for use in, interstate or foreign commerce." Under the DTSA, federal district courts have original jurisdiction of such actions. The DTSA is also forward-reaching in that it applies only to misappropriation that occurs after its enactment.

   1. Civil Seizure

      As noted above, the DTSA contains a civil seizure mechanism. Under this provision, a district court may, based on an affidavit or verified complaint satisfying certain statutory requirements (discussed below), "upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action."

   2. Requirements for a Seizure Order

      A district court may not issue a seizure order unless it makes certain statutory-based findings. Specifically, the court must find that (1) an order pursuant to FRCP 65, or another form of equitable relief, would be inadequate to prevent the dissemination of the trade secret because the target of the order would evade, avoid, or otherwise not comply with such...