U.S. Senate Approves Defend Trade Secrets Act (DTSA), Some Uncertainty Remains
Controverting claims of gridlock in Congress, the United States Senate recently approved the Defend Trade Secrets Act (“DTSA”) by a vote of 87-0. The measure, approved by the upper chamber on April 4th, goes to the House of Representatives, which is considering a very similar bill with sponsorship from both sides of the aisle.
The DTSA, for the first time, would create a federal private right of action for misappropriation of trade secrets. Companies that are victims of trade-secret theft would have an alternative to state law (and thus, to the state courts in which cases often are brought) to bring a civil action to enjoin violations of trade secret theft and to seek remedies for violations that already have occurred.
The uncertainty of protection for trade secrets from one state to another, as well as the chilly reception in some state courts to out-of-state plaintiff companies, is a significant motivating factor behind the DTSA. By providing a federal forum and remedy, the DTSA, over time, should create a nationwide body of law and provide a degree of predictability to company litigants. However, the DTSA does not preempt state trade secrets laws, and thus state law and state courts will remain an option for victims of trade secret theft. Companies will need to consider whether the state law and court is preferable to the DTSA and federal court, but the DTSA will be helpful in protecting trade secrets across multiple jurisdictions. Even for companies with operations in only one state, access to federal courts and federal judges under the DTSA can be preferable, particularly if the relevant state courts have shown themselves to be slow to respond, or even hostile, to trade secrets litigation.
President Barack Obama has come out in favor of the DTSA, as have numerous companies and business groups. Now, the DTSA goes back to the House of Representatives for further consideration in conjunction with the nearly identical House bill with numerous bi-partisan sponsors. The House bill, however, has been stuck in committee since last October. Time will tell whether the House leadership will move its bill out of committee and reconcile it to the Senate version. If it does, then the DTSA may well be one of the few pieces of legislation to get passed and signed into law this election year.
Regardless of the fate of the DTSA, companies are well-advised to periodically identify their trade secrets and ensure that reasonable measures are in place to protect such information and to minimize the risk of exposure to theft, inappropriate use or disclosure. For example, documents containing trade secrets should be labeled as confidential, their distribution should be limited, they should be maintained in secure areas (e.g., locked cabinets), and individuals who are privy to such secrets should be trained on the nature of that information and how to safeguard it. Similarly, access to computer files containing such information should be restricted, and those with access should be trained on the files’ confidentiality. Such steps not only can limit the risk of inappropriate use or disclosure, they also are invaluable when seeking a court’s protection of the trade secrets at issue.