Senate Passes Defend Trade Secrets Act of 2016

On April 4, 2016, the Senate passed the much-awaited Defend Trade Secrets Act of 2016 (S. 1890) by a unanimous vote of 87-0. If the House passes the bill, the proposed legislation would go to the President, who has already voiced support for this legislation. 

The Senate bill amends the Economic Espionage Act to provide a private civil cause of action for misappropriation of trade secrets. At present, civil trade secret misappropriation is governed by state law, and 48 states have adopted the Uniform Trade Secret Act. While the proposed legislation would not preempt current state law, it would provide a federal cause of action if the trade secret is related to a product or service that is used in, or that is intended to be used in, interstate or foreign commerce. Under the bill, "misappropriation" includes acquiring information the person knows, or should know, is a trade secret by improper means. "Improper means" includes theft, bribery, misrepresentation, in violation of a duty to maintain secrecy, and espionage, but specifically does not include reverse engineering or other lawful means of acquiring the information. Any claim under this proposed legislation must be brought within three years of learning of the misappropriation.

Importantly, the bill provides for an injunction if the misappropriation may be ongoing and awards damages for any past losses or unjust enrichment. In cases involving willful and malicious misappropriation, exemplary damages can be awarded (up to double the amount of compensatory damages).

Notably, the bill includes an ex parte seizure provision, which applies if a preliminary injunction would be inadequate and if the trade secret holder can overcome numerous hurdles. In general, the trade secret holder must show (i) a preliminary injunction would be inadequate, (ii) the trade secret holder will suffer irreparable harm, (iii) that harm outweighs any harm to the person alleged to have misappropriated the trade secret, (iv) the trade secret holder is likely to show that the information is a trade secret and the accused person misappropriated the information, (v) the accused person possesses the trade secret, (vi) the trade secret holder can identify the information to be seized, (vii) the trade secret would be compromised if the accused person were notified of the seizure, and (viii) the trade secret holder has not publicized the requested seizure. If a trade secret holder obtains an ex parte seizure order, a hearing must be held no later than seven days after issuance of the order, unless the accused person agrees to a later date.

The bill is also designed to include safeguards for employees who change jobs. Specifically, the bill requires a showing of an actual threat of misappropriation by a former employee, not merely a showing that a former employee has sensitive information. The bill also includes safeguards for "whistleblowers," providing immunity from liability for individuals disclosing a trade secret in confidence to a government official for purposes of reporting a suspicion of a violation of the law. The bill mandates that employers "shall" provide notice of these “whistleblower” protections in any contract or agreement with the employee regarding trade secrets. Failure to do so will result in the employer forfeiting any claim for exemplary damages or attorney fees in an action against the employee.