Defend Trade Secrets Act (DTSA)

For startups and other innovative businesses, protecting intellectual property–particularly trade secrets–is paramount. In 2016, Congress enacted the Defend Trade Secrets Act (DTSA), which changed the landscape of IP protection in the United States as we know it. The DTSA provides federal jurisdiction for the theft of trade secrets, aligning with existing federal intellectual property laws while also offering uniformity in trade secrets litigation, which had previously been governed by varying state laws. Companies also have certain compliance obligations with respect to the DTSA, as detailed further below.

The DTSA can be viewed as something of an extension of the Economic Espionage Act of 1996 (EEA), allowing an owner of a trade secret to sue in federal court for misappropriation. Trade secrets are broadly defined under the DTSA as all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, or codes—whether tangible or intangible. To qualify as a trade secret, the information must derive independent economic value from not being generally known or readily ascertainable through proper means by another person who can obtain economic value from its disclosure or use.

A notable provision of the DTSA is the introduction of a mechanism for civil seizure. This enables a court to order law enforcement officials to seize stolen trade secret materials without notifying the accused party beforehand if the court believes that the accused party would destroy evidence if they were forewarned. However, this provision is intended to be used in exceptional circumstances only, where an immediate and irreparable injury would occur. The threshold for initiating a seizure under the DTSA is high, and the act includes measures to protect defendants from abuses, such as security requirements and damages for wrongful or excessive seizures.

Furthermore, the DTSA explicitly allows for injunctions and damages. An injunction may prevent the dissemination of a trade secret, and the damages awarded can include actual losses caused by the misappropriation and any unjust enrichment not covered by the calculated losses. Additionally, if the trade secret was willfully and maliciously misappropriated, the court may award exemplary damages, which could be up to twice the amount of the actual damages.

The DTSA also contains a whistleblower immunity provision. This provision protects individuals from criminal or civil liability under any federal or state trade secret law if the individual discloses a trade secret in confidence to a government official or an attorney, solely for the purpose of reporting or investigating a suspected legal violation, or in a complaint or other document filed under seal in a lawsuit. It is vital that businesses like startups and other innovative companies update their form documents, such as their Non-Disclosure Agreements (NDAs), to provide notice to counterparties of this immunity under the DTSA.

Since its enactment, the DTSA has radically shifted the options businesses have to protect their trade secrets. It provides businesses with a federal avenue to pursue claims of trade secret theft, which can often involve complex jurisdictional issues when multiple states or international boundaries are involved. Moreover, the DTSA’s alignment with existing federal intellectual property protections reinforces the US’s commitment to safeguarding intellectual property rights.