As home to dozens of industry trailblazers in health care, technology and food, Minnesotans have reason to celebrate the passage last week of the Defend Trade Secrets Act (DTSA). Here's why:
Imagine you own a high-tech company and one of your employees has just quit, taking along a jump drive loaded with your company's most critical confidential information. Before you know it, she's in another state, boarding a plane to China, where your competitor waits to greet her. What do you do?
Existing state laws protecting trade secrets make for long, arduous litigation when secrets cross state lines. In the past, there was a real risk that if you went to court, your confidential information may have left the country — even if you later won your lawsuit. The DTSA, headed for President Obama's signature after passing the U.S. House on a 410-2 vote, addresses this by allowing the federal judiciary to jump over state lines and quickly address urgent situations.
Trade secrets can be just as valuable to businesses as patents, copyrights or trademarks, which are protected by uniform national laws. But trade secrets are more vulnerable than these other forms of intellectual property, and yet, until now, they've lacked federal protection.
Of the many hurdles Congress and stakeholders had to clear to pass this game-changing legislation, the following stand out as most critical for businesses:
Property seizure, no notice
Many times, if a trade secret thief gets notice of a court action seeking to stop such a disclosure, they leave the country or disseminate the trade secrets before a court can stop them. The DTSA addresses this by giving trade secret holders the right to request that the court — without notifying the other side — issue an order allowing law enforcement to seize the stolen trade secrets from the thief. This is called an ex parte seizure order. In the example we gave above, your rogue ex-employee could have her jump drive confiscated before it reaches your competitors.
The ex parte seizure provisions of the DTSA originally drew some criticism for their potential to impede the rights and legitimate business operations of an accused wrongdoer. To address these issues, stringent measures were added to balance the rights of all parties. For instance, not only must the trade secret owner establish the standards necessary to obtain a standard civil injunction, the trade secret owner must show specific evidence that a normal civil injunction would be inadequate because the thief would evade or violate the order.
The facts would also have to show that your former employee would destroy, move, hide or otherwise make inaccessible to the court the items to be seized.
Opponents of the legislation have been concerned that federalizing trade secret disputes will tip the scales too far in favor of companies and thwart employees' right to work for the employer of their choice. In the DTSA, Congress has tried to carefully balance the protection of trade secrets with employees' right to mobility.
Because the harm caused by trade secret theft cannot always be remedied by money alone, the DTSA gives courts the authority to enter injunctions to prevent actual or threatened trade secret theft, in addition to recovering monetary damages.
The DTSA imposes significant limitations on injunctions affecting an employee's ability to pursue his chosen career. For example, injunctions issued under the DTSA cannot prevent someone from taking a new job. An injunction can, however, place limits or conditions on the type of work someone can perform, but only if there is evidence of threatened misappropriation. Put another way, an employer cannot obtain an injunction simply because a former employee knew or had access to trade secrets; there must be evidence of actual or threatened theft of those secrets.
Preserving state autonomy
Opponents of uniform federal legislation also fear it will wipe out states' rights to protect their own citizens and businesses. Congress addressed this concern by allowing victims of trade secret theft to seek relief under the new federal standard or, if the circumstances permit, seek relief under the already-existing state law.
Some critics say that failure to pre-empt state laws will complicate and undermine the goal of federal uniformity. But this legislative compromise gives trade secret owners a broader array of protections for their trade secrets, and permits them to take advantage of more robust or favorable state laws when appropriate.
Trade secret theft costs American businesses and communities billions of dollars every year. Congress was right to resolve conflicting interests and give trade secrets federal protection on par with other forms of intellectual property. Doing so helps protect the U.S. economy.
Randy Kahnke, Kerry Bundy and Marty Chester are partners at Faegre Baker Daniels. Tyler Young is an associate at the firm.