Protecting Your Business: Federal Trade Secret Litigation Under the DTSA

Protecting Your Business: Federal Trade Secret Litigation Under the DTSA

The Defend Trade Secrets Act of 2016 (DTSA) created the first federal private cause of action for trade secret misappropriation. Before the DTSA, trade secret claims were primarily governed by state law. The DTSA provides businesses with a powerful federal tool to protect their most valuable confidential information.

What Qualifies as a Trade Secret?

Under the DTSA (18 U.S.C. § 1839), a trade secret includes all forms and types of financial, business, scientific, technical, economic, or engineering information, provided that:

1. The owner has taken reasonable measures to keep the information secret
2. The information derives independent economic value from not being generally known or readily ascertainable

Examples of trade secrets include:

• Customer lists and pricing strategies
• Manufacturing processes and formulas
• Software algorithms and source code
• Business strategies and financial projections
• Research and development data

Elements of a DTSA Claim

To prevail on a DTSA claim, a plaintiff must prove:

1. A trade secret exists that meets the statutory definition
2. The trade secret was misappropriated through improper means (theft, bribery, breach of duty) or by someone who knew or should have known the information was obtained improperly
3. The trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce

The Ex Parte Seizure Provision

One of the most powerful features of the DTSA is the ex parte seizure provision, which allows a court to order the seizure of property necessary to prevent the propagation or dissemination of trade secrets without prior notice to the defendant.

This extraordinary remedy is available only in exceptional circumstances where:

• A temporary restraining order would be inadequate
• An immediate and irreparable injury will occur
• The applicant has not publicized the seizure request
• The applicant is likely to succeed on the merits

Remedies Under the DTSA

Injunctive Relief: Courts may grant injunctions to prevent actual or threatened misappropriation. However, the injunction cannot prevent a person from entering into an employment relationship, and conditions must be based on evidence of threatened misappropriation, not merely the information the person knows.

Damages: Plaintiffs may recover:

• Actual loss caused by the misappropriation
• Unjust enrichment not addressed by actual loss
• A reasonable royalty in lieu of actual damages
• Exemplary damages up to 2x the award for willful and malicious misappropriation

Attorney's Fees: Available to the prevailing party if the claim was made in bad faith or the misappropriation was willful and malicious.

Whistleblower Immunity

The DTSA includes an important immunity provision: individuals who disclose trade secrets in confidence to a government official or attorney for the purpose of reporting a suspected violation of law cannot be held liable under the DTSA.

Employers must provide notice of this immunity in any contract or agreement governing trade secrets or confidential information.

Best Practices for Trade Secret Protection

1. Identify and document your trade secrets
2. Implement reasonable security measures (access controls, encryption, NDAs)
3. Include DTSA whistleblower notice in employment agreements
4. Conduct exit interviews when employees with access to trade secrets depart
5. Monitor for potential misappropriation through regular audits

Conclusion

The DTSA provides businesses with a robust federal mechanism for protecting trade secrets. Proactive measures to identify and protect trade secrets, combined with prompt legal action when misappropriation is suspected, are essential components of any intellectual property protection strategy.

This article is for informational purposes only and does not constitute legal advice.