Comparing the Defend Trade Secrets Act and the Uniform Trade Secrets Act

by BakerHostetler

As we have previously discussed on the blog, President Obama signed the Defend Trade Secrets Act (DTSA) into law on May 11, 2016. Fortunately, while the law has many new components that businesses need to consider, parts of the DTSA are derived from the Uniform Trade Secrets Act (UTSA). The UTSA has been adopted, in various forms, by 47 states to date. Therefore, there is a large body of state law that has developed on the UTSA that may be applicable to the DTSA. This latest blog entry in our series on the DTSA analyzes some of the differences and similarities between the DTSA and UTSA, specifically the acts’ “trade secrets” and “misappropriations” definitions and their statutes of limitations.

I. “Trade Secret” Definition

The UTSA and DTSA have similar but slightly different definitions of “trade secrets”:

UTSA Trade Secret Definition

§ 1(4) “Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

DTSA Trade Secret Definition

18 U.S.C. § 1839(3) as amended by § 2(b)(1) of DTSA

(3) the term “trade secret” means 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, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—

(A) the owner thereof has taken reasonable measures to keep such information secret; and

(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of the information;

A notable difference between the two definitions is that the UTSA “trade secret” definition is broader because it can apply to all information that derives independent economic value, actual or potential, from not being known and readily ascertainable to other persons. The DTSA definition, by contrast, limits trade secrets to financial, business, scientific, technical, economic or engineering information. The DTSA also provides additional examples of the types of information that can be trade secrets, such as compilations, designs and processes. Presumably, such types of information would be covered under the UTSA’s broader definition, meaning this is not a substantive addition to trade secrets law.

Another difference is that the UTSA definition provides that the information be subject to efforts that are reasonable under the circumstances to maintain its secrecy, but does not define who must undertake such efforts. The DTSA provides that it is the owner of the information who is required to take reasonable measures to keep the information secret.

Other than these slight differences, the two definitions are substantively the same.

II. “Misappropriation” Definition

Fortunately, “trade secret” practitioners should not have to learn a new definition of “misappropriation” for the new federal statute. The DTSA and UTSA “misappropriation” definitions are substantively identical. The only changes are stylistic. The DTSA definition is included below, with the changes from the UTSA § 1(2) redlined.

DTSA Misappropriation Definition

2(b)(5) the term ‘misappropriation’ means—

(A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(B) disclosure or use of a trade secret of another without express or implied consent by a person who—

(i) used improper means to acquire knowledge of the trade secret;

(ii) at the time of disclosure or use, knew or had reason to know that his the knowledge of the trade secret was—

(I) derived from or through a person who had utilized used improper means to acquire it the trade secret;

(II) acquired under circumstances giving rise to a duty to maintain its the secrecy of the trade secret or limit its the use of the trade secret; or

(III) derived from or through a person who owed a duty to the person seeking relief to maintain its the secrecy of the trade secret or limit its the use of the trade secret or

(iii) before a material change of his [or her] the position of the person, knew or had reason to know that—

(I) it the trade secret was a trade secret; and

(II) that knowledge of it the trade secret had been acquired by accident or mistake.

There is one slight change to the definition of “improper means” that is included in the definition of “misappropriation.” The UTSA and DTSA share the same definition of what are included as improper means, specifically “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” UTSA § 1(1); DTSA § 2(b)(6)(A).

The two acts differ, however, in identifying what acts are not included as improper means. A comment in Section 1(1) of the UTSA provides that proper means include:

  1. Discovery by independent invention;
  2. Discovery by “reverse engineering,” that is, by starting with the known product and working backward to find the method by which it was developed. The acquisition of the known product must, of course, also be by a fair and honest means, such as purchase of the item on the open market for reverse engineering to be lawful;
  3. Discovery under a license from the owner of the trade secret;
  4. Observation of the item in public use or on public display;
  5. Obtaining the trade secret from published literature.

The DTSA is more broad, but less specific. The DTSA provides that the term “improper means” “does not include reverse engineering, independent derivation, or any other lawful means of acquisition.” DTSA § 2(b)(6).

III. Statute of Limitations

Both the UTSA and the DTSA share the same three-year statute of limitations. UTSA § 6; DTSA § 2(a)(d). In particular, both acts require that the action be commenced within three years after the date on which the misappropriation “is discovered or by the exercise of reasonable diligence should have been discovered.” Id. Under both acts, a continuing misappropriation constitutes a single claim of misappropriation. Id.

Practitioners should be cautious, however, because some states that adopted the UTSA have shorter or longer limitations periods.

IV. Conclusion

As you can see, it is important to be aware of the differences and similarities between the UTSA, as adopted by the states, and the DTSA. Check back next week for our third installment on the DTSA.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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