The Defend Tirade Secrets Act of 2016
| Publication year | 2017 |
| Pages | 34 |
| Citation | Vol. 86 No. 1 Pg. 34 |
Mitchell Herren and Rachael Silva.
I. Introduction
As market forces increasingly demand that more and more workers have digital access 24/7 to their employers' company information, the line is blurred between what is appropriate for employees to access and store, especially on personally owned devices, and what remains protected company information. This, combined with the age-old reality that some competitors will simply attempt to steal what does not belong to them, has led many state legislatures to pass laws protecting trade secret information. The Uniform Trade Secrets Act has been adopted by many states, including Kansas.[1]
Trade secret owners now also have an avenue in federal court to seek a civil remedy for thefts of certain trade secrets. The Defend Trade Secrets Act of 2016 (DTSA) applies to trade secret thefts within the Act's jurisdiction occurring on or after the date of enactment.[2] Prior to the enactment of the DTSA, the Economic Espionage Act (EEA) limited civil proceedings concerning the theft of trade secrets solely to the Attorney General.[3] The DTSA was enacted to "allow trade secret owners to protect their innovations by seeking redress in Federal court, bringing their rights into alignment with those long enjoyed by owners of other forms of intellectual property, including copyrights, patents, and trademarks."[4] It was unanimously passed by the Senate and later ratified by a vote of 410-2 in the House.
Section 5 of the DTSA states the sense of Congress in enacting the DTSA as follows:
(1) trade secret theft occurs in the United States and around the world;
(2) trade secret theft, wherever it occurs, harms the companies that own the trade secrets and the employees of the companies;
(3) chapter 90 of title 18, United States Code (commonly known as the "Economic Espionage Act of 1996"), applies broadly to protect trade secrets from theft; and
(4) it is important when seizing information to balance the need to prevent or remedy misappropriation with the need to avoid interrupting the-
(A) business of third parties; and
(B) legitimate interests of the party accused of wrongdoing. [5]
Notably, the DTSA does not preempt state law, meaning a trade secret owner may file a petition in a United States District Court alleging claims under both the DTSA and, if applicable, the Uniform Trade Secrets Act (UTSA), which is codified in Kansas at K.S.A. 60-3320, etseq. (KUTSA). Several provisions of the DTSA largely mirror those of the UTSA. However, the DTSA contains additional provisions requiring that trade secret owners notify employees in writing of certain immunities to the DTSA, such as whistleblower immunity, and allowing ex parte seizures of misappropriated trade secrets in some circumstances. These important provisions will be discussed infra in Sections III. A. and C.
This article will first review basic elements of a trade secret action under the DTSA, comparing some provisions with those of the KUTSA. It will then address similarities and differences between the two acts that may be of importance to attorneys and owners contemplating an action to remedy a misappropriation of trade secrets.
II. Basics of Trade Secret Misappropriation Cases
A. Jurisdiction
Prior to the DTSA, a party alleging a claim under the KUTSA could only bring an action in federal court by establishing diversity jurisdiction pursuant to 18 U.S.C. § 1332. The DTSA provides that the "district courts of the United States shall have original jurisdiction of civil actions brought under this section."[6] A trade secret owner alleging a claim under the DTSA may now bring a claim in federal court without regard to the amount in controversy or the domicile of the parties. A trade secret owner may then also allege a claim under the KUTSA or other state-law theory under the district court's supplemental jurisdiction, 18 U.S.C. § 1367.
While the DTSA allows entry to federal court for a trade secret owner alleging misappropriation, that entry is limited to trade secrets that are "used in, or intended for use in, interstate or foreign commerce."[7] The "intended for use in" clause may provide for interesting issues of proof
B. Misappropriation
The goal of most trade secret litigation is to prove the defendant "misappropriated" a "trade secret." The definition of "misappropriation" in the DTSA is substantially the same as the definition under the KUTSA, with only minor drafting changes. [8]
"Misappropriation" under the DTSA is defined as:
(A) acquisition of a trade secret of another by a person who knows or has reason to know the trade secret was acquired by improper means; or
(B) disclosure or use of a trade secret of another without express or implied consent by a person who-
(i) used improper means to acquire knowledge of the trade secret; (ii) at the time of disclosure or use, knew or had reason to know the knowledge of the trade secret was- (I) derived from or through a person who had used improper means to acquire the trade secret; ( II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or
(III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or
(iii) before a material change of the position of the person, knew or had reason to know that-
(I) the trade secret was a trade secret; and
(II) knowledge of the trade secret had been acquired by accident or mistake. [9]
Practically speaking, there is no material difference in establishing a misappropriation of a trade secret under both the DTSA and the KUTSA. [10]
C. "Trade Secret"
The definition of trade secret under the EEA was largely unchanged by the DTSA. While the definition does not mirror that of the KUTSA, they are similar. The DTSA defines trade secret as:
(3) "Trade secret" means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if-
(A) the owner thereof has taken reasonable measures to keep such information secret; and
(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information. [11]
The KUTSA definition refers to "information." The DTSA definition, however, specifies certain types of information. While this may seem to indicate the DTSA has a more narrow definition of what comprises a trade secret, the reality is that the words "financial, business, scientific, technical, economic, or engineering information" are likely intended to clarify the intended broad nature of the definition.
D. "Improper Means"
In the DTSA, the term "improper means": "(A) includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and (B) does not include reverse engineering, independent derivation, or any other lawful means of acquisition."[12] This latter section (B) language does not appear in the KUTSA.
While the definition of improper means under the DTSA appears to go a step farther than the KUTSA in excluding certain acts as improper means, this language appears to be adopted from comments to the UTSA, which are not codified in the KUTSA. In Comment 1 to the UTSA, proper means includes "discovery by independent invention," "discovery by 'reverse engineering,'" "discovery under a license from the owner of the trade secret," "observation of the item in public use or on public display," and "obtaining the trade secret from published literature."[13] Therefore, in all likelihood, there will be no material distinction between the DTSA and KUTSAs definitions of improper means.
E. Remedies
The remedies set forth in the DTSA are largely adopted from the UTSA, with notable distinctions relevant to employer-employee cases.
1. Injunction
The DTSA injunction provision is similar to the KUTSA provision, and provides that the court may grant an injunction 1) "to prevent any actual or threatened misappropriation;" 2) requiring actions to protect the trade secret (as long as the injunction does not "prevent a person from entering into an employment relationship"); and 3) condition future use on payment of a royalty[14]
The notable difference in the injunctive provisions is the DTSAs attempt to not limit employee mobility based on what has come to be known as the "inevitable disclosure doctrine." This issue will be addressed infra in Section III. D.
2. Damages
Both the DTSA and KUTSA provide for damages for the actual loss caused by the misappropriation of the trade secret, as well as...
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