On April 27, 2016, the United States House of Representatives voted 410-2 to approve the proposed Defend Trade Secrets Act (DTSA). The vote follows the Senate’s unanimous approval of the bill. President Obama has stated that he will sign the bill. This rare display of legislative and executive cooperation and goodwill is, on its own, quite impressive. Along the way, a couple of key compromises were required to gain consensus. Putting those compromises aside for the moment, what ultimately emerged is a law which could have significant effects on how employers deal with rogue ex-employees.
The departure of employees for competitors is not an unusual occurrence in modern business. Also fairly common is the assertion that those employees took with them customer lists, spreadsheets and (even more so today) gigabytes of electronic business data. Faced with such misconduct, because trade secret misappropriation has been considered a tort under state law, employers have traditionally been compelled to seek relief in state court, often in employee friendly jurisdictions and courts. In recent years, most states have adopted variations of the Uniform Trade Secrets Law, which has leveled the playing field considerably. Yet, some significant variations still exist from state to state. Through the DTSA, Congress has decided to largely eliminate those distinctions. Moreover, and critically, it has changed shifted the venue for handling most post-employment matters, handling to federal district courts disputes now routinely handled by state courts.
The DTSA technically applies only to trade secrets related to products or services used in interstate or foreign commerce. In today’s world, finding products that don’t qualify under this standard may be difficult. Once that threshold is met, and federal jurisdiction is established on the trade secret claim, all related state-law claims can follow the trade secret claim into federal court, now allowing the injured ex-employer to pursue claims for breaches of non-competition, non-solicitation and confidentiality agreements alongside the trade secret ones in a venue which might be less employee-friendly than a local state court where the defendant may reside. While there remains a bit of uncertainty as to how the DTSA will be applied, one things seems fairly certain: federal courts may soon be seeing a significant uptick in cases that were previously routinely handled by the local county courts.
One final observation: It appears that the DTSA is being inserted in the federal crimes code. Perhaps it is appropriate, then, that a new weapon granted to employers in the DTSA but not found in the Uniform Trade Secrets Acts in most states is the possibility of ex parte seizure of the alleged misappropriated trade secrets. The use of this powerful weapon by federal courts is supposed to be limited to “extraordinary circumstances” (the addition of this limitation was one of the compromises that led to overwhelming approval of the bill) but it could provide quite a strong tool for the ex-employer. Stay tuned to see how courts will interpret and apply this provision in the DTSA.
