The New Federal Defend Trade Secrets Act

Speaking of trade secrets, there’s a new civil law on the books.

Two weeks ago, with a stroke of the President’s pen, Congress enacted a law that allows you to sue (or be sued) in federal court for the theft of trade secrets. The new law amended a criminal statute that we alluded to in last week’s post.

The amended statute defines a trade secret as any information you own that you’ve taken reasonable steps to keep secret and that derives economic value from not being known to, nor readily ascertainable by, another person who could derive value from it. The law provides federal jurisdiction for civil claims if the trade secret has sufficient nexus to interstate or foreign commerce. It doesn’t preempt any state laws.

If you’ve got a claim, you must bring it within three years of the date you discovered the theft or should’ve discovered it through reasonable diligence.

If you win, you can get injunctions to protect your trade secret as well as recover damages for your actual losses, their unjust gains, or your reasonable royalties. If you prove that the other side acted in bad faith, you can get punitive damages up to double your other damages, along with reasonable attorneys’ fees.

Plus, at the outset, not only can you sue (or be sued), you can apply for an emergency restraining order to freeze or seize property you need to preserve your trade secret, without notice to the other side.

The courts won’t just dole these orders out, though, because the law reserves them for “extraordinary circumstances.” To get one, you must clearly allege specific facts to show, among other things, that the bad guys stole your trade secret and would hide or destroy the property or evidence if they were given notice. And you have to put up security in advance to cover their damages if it turns out you were wrong or went too far.

If you do get a restraining order, the law requires that the seizure be carried out in a way that minimizes harm to any legitimate business operations. The court will schedule a hearing within seven days of the order, and there, you’ll have to prove up the underlying facts or the court will dissolve or modify its order.

If it turns out you were wrong or went too far, anyone harmed by your seizure can sue you for their damages, including lost profits, cost of materials, loss of good will, punitive damages if you acted in bad faith, and reasonable attorneys’ fees in most cases.

Finally, the law protects whistleblowers who disclose trade secrets in the course of reporting a violation of law, as well as parties to litigation who disclose trade secrets in a court filing, as long as they file it under seal and abide by any subsequent court orders.

For the full text of the statute, see here.