The Current State of Trade Secret Law and How the New Federal Statute Will Shape the Landscape

knobbe.com
The Current State of Trade Secret Law and how the New
Federal Statute Will Shape the Landscape
Boris Zelkind
SDIPLA – May 19, 2016
The recipient may only view this work. No other right or license is granted.

2© 2016 Knobbe, Martens, Olson & Bear, LLP all rights reserved.
New Federal Trade Secret Misappropriation Law
May 11, 2016 - President Obama signed DTSA into law

Trade Secret Protection Schemes
• State: Uniform Trade Secrets Act
– Adopted in various forms between 1979 and
2013
• Common Law
– NewYork and Massachusetts
• Federal: Defend Trade Secrets Act
– Amends the Economic Espionage Act

Trade Secret Protection Schemes
So what is different now…

DTSA vs. Traditional Trade Secrets Laws
1) Federal Civil Right of Action
2) Definition of a Trade Secret
3) Definition of Misappropriation
4) Civil Seizures
5) Damages
6) Preemption
7) Procedural Considerations – 2019 Statements
8) Whistleblowers
9) Inevitable Disclosure

#1 Civil Right of Action
• DTSA created a federal civil right of action for
trade secret misappropriation
• Federal district courts will have original
jurisdiction to hear DTSA cases
• No need to shoe horn trade secrets cases into
federal courts via diversity jurisdiction or
Computer Fraud & Abuse Act

#2 Definition of a Trade Secret

What is a Trade Secret?
Basic Definition of Trade Secret
• information
• that derives economic value from being secret
• is the subject of reasonable efforts to maintain
secrecy

UTSA - What is a Trade Secret?
UTSA – “‘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 - What is a Trade Secret?
DTSA – “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”

Differences between Federal and State Definition
• Very Similar Definitions, but
• DTSA appears broader
• DTSA covers all forms of information, tangible or
intangible
• DTSA may cover information committed to memory
• Has not been addressed in 20 years of EEA
jurisprudence
• Does the trade secret have to be fixed in a tangible
medium?

Continued Use
• Neither the DTSA or UTSA require the
owner of a trade secret to continue using
the trade secret in the course of business
• Common law states (New York and
Massachusetts) require the “continued
use” of a trade secret

#3 Misappropriation – UTSA and DTSA
• Acquisition of a trade secret by a person who knows or
has reason to know the trade secret was acquired by
improper means; or
• Disclosure or use of a trade secret without consent by a
person who:
– Used improper means to acquire the trade secret
– Knew or had reason to know the trade secret was:
• Derived from or through improper means
• Acquired under circumstances giving rise to a duty to
maintain secrecy of the trade secret
• Derived from or through a person who had a duty of
secrecy

Misappropriation
What is “improper means”?

Misappropriation
What is “improper means”?
• Theft
• Bribery
• Misrepresentation
• Breach or Inducement of a breach of duty of
confidentiality
• Espionage
• Not Improper:
• Reverse Engineering
• Independent Derivation
• Lawful means of acquisition

Differences in Misappropriation
• No material difference

#4 Civil Seizure

#4 Civil Seizure
• DTSA allows court to order seizure of property
without notice
– Ex parte seizures are to be ordered “only in
extraordinary circumstances”
– To prevent propagation or dissemination of
the trade secret
• Federal law enforcement to carry out seizure
order
• Court will maintain possession of property

DTSA – Seizure Requirements
• Requirements for issuing an order:
Like a TRO on steroids
– Likelihood of success on merits
– Immediate and irreparable injury
– Balance of harms
– Additional elements
• TRO or Preliminary Injunction would be inadequate
to prevent propagation and dissemination
• Defendant will destroy, move or hide property if
given notice

DTSA – Seizure Requirements
• Requirements for issuing an order:
– Additional elements continued
• Defendant has the trade secret and the
property to be seized
• Describe the property to be seized with
particularity
• Applicant has not publicized the requested
seizure

DTSA – Civil Seizure
• Protections for Defendants
- Hearing no later than in 7 days
- Access to seized property by applicant is restricted
- Court may hire special master to facilitate return of
unrelated property to defendant
- Defendant can sue for damages stemming from
wrongful or excessive seizure

#5 Damages
• Actual Loss
• Unjust Enrichment
• Reasonable Royalty
• Exemplary Damages – willful and malicious
misappropriation
– 2x amount of damages
• Attorney’s Fees – bad faith claim, bad faith re
motion to terminate injunction, or willful and
malicious misappropriation

#6 Preemption
• DTSA does not preempt other trade
secret laws or other laws in general
- Can assert state trade secret claims
- But can you assert other causes of
action?

Preemption
• CUTSA and UTSA do preempt other causes of
action
• CUTSA has been interpreted to preempt
common law claims that are based on the same
nucleus of fact as the misappropriation of trade
secret
• Scope of UTSA preemption varies widely from
state to state

#7 Procedural Considerations – 2019 Statement
• California civil procedure section 2019.210
requires trade secrets to be identified with
“reasonable particularity” before discovery
can begin
• Federal district courts in CA have applied
2019 requirement to trade secrets cases
• Bogs down litigation – spawns 2019 battles
• 2019 statement requirement is eliminated
with DTSA

#8 DTSA – Whistleblowers
• Whistleblower Immunity
– Cannot be held criminally or civilly liable under any Fed
or State trade secret law
– If disclosure of trade secret:
• Is in confidence to law enforcement or attorney; and
• For purpose of reporting a violation of law
– Employer must include a notice of immunity in any
new agreement or updated agreement with employee
that governs use of trade secrets or confidential
information (to be eligible for exemplary damages and
attorney’s fees)

#9 Inevitable Disclosure
• UTSA recognizes the Inevitable Disclosure Doctrine
- employee is unable to perform duties for a
competitor without inevitably using or disclosing a
former Employer’s trade secrets
• California has rejected inevitable disclosure
• DTSA does not adopt the Inevitable Disclosure
Doctrine
– An injunction cannot prevent employment or
place conditions on employment based merely
on information the person knows. Sec.
2(b)(3)(A)(i)(I)

Thank You!
Boris Zelkind
boris.zelkind@knobbe.com

The Current State of Trade Secret Law and How the New Federal Statute Will Shape the Landscape

More Related Content

What's hot (20)

Viewers also liked (17)

Similar to The Current State of Trade Secret Law and How the New Federal Statute Will Shape the Landscape (20)

More from Knobbe Martens - Intellectual Property Law (20)

Recently uploaded (20)

The Current State of Trade Secret Law and How the New Federal Statute Will Shape the Landscape