Changes in trade secrets law on the horizon on both sides of the Atlantic

In the US – making a federal case out of it!

On April 27, 2016, the US Congress passed the Defend Trade Secrets Act (the DTSA or the Act). Just yesterday, on May 11, 2016, President Barack Obama signed the Act into law.

In the past, trade secrets were protected mainly through the laws of the individual states, with 48 out of the 50 states having adopted some version of the Uniform Trade Secrets Act (the UTSA).

The DTSA provides trade secret owners with a civil claim under federal law for trade secret misappropriation. Under the Act, misappropriation is defined as follows:

1. 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
2. disclosure or use of a trade secret of another without express or implied consent by a person who—
   1. used improper means to acquire knowledge of the trade secret;
   2. at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was—
      1. derived from or through a person who had used improper means to acquire the trade secret;
      2. acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or
      3. derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or
   3. before a material change of the position of the person, knew or had reason to know that—
      1. the trade secret was a trade secret; and
      2. knowledge of the trade secret had been acquired by accident or mistake.

The remedies for committing any of the prescribed acts include injunctive relief as well as damages. As for injunctive relief, the Act specifies that affirmative action can be ordered as appropriate to protect the trade secret, and/or a reasonable royalty imposed in exceptional circumstances where an injunction would be inequitable. As for damages, in addition to the potential award of a reasonable royalty, compensatory damages can be awarded for the actual loss of the trade secret as can any unjust enrichment provided to the misappropriator for taking and using the misappropriated trade secret.

Furthermore, under extraordinary circumstances, the Act allows trade secret owners to obtain an ex parte seizure (i.e. without prior notice to the accused party) of the property necessary to prevent the disclosure of the trade secret, such as the accused’s computers and hard drives. Double damages for willful and malicious appropriation, along with attorneys’ fees for bad faith litigation and willful and malicious misappropriation, are also provided for under the Act.

The new legislation is intended to add an additional layer of trade secret protection beyond those afforded by individual states.

The US government and many in the business community believe that the additional protection is necessary in order to address the interstate, international, and cyber-enabled nature of trade secret misappropriation in today’s globalized world. Indeed, with the DTSA, trade secret owners now have the option of pursuing state, federal, or both state and federal causes of action against misappropriators. The ex parte seizure provisions of the DTSA in particular is a unique tool for promptly addressing these wrongs.

The full implications of layering a federal right on top of the various state claims as well as the advent of ex parte seizures in this space will have to wait for further implementation and use of the Act. The addition of these rights, however, is welcome news for the business community as it continues to address how technological advancements are used to improperly access, obtain, and use their valuable trade secreted information.

In Europe - raising the level of potection.

Meanwhile in the European Union (EU), the European Parliament on 14 April 2016 approved the text of the European Trade Secrets Directive (the Directive),¹ which now has also been provisionally agreed to by the European Council.

The protection trade secrets currently receive across the EU is inconsistent with a number of Member States having ineffective protection. The Directive is set to change this. Although it will not have direct effect in the Member States, Member States will be required to review their existing laws on the protection of trade secrets and need to establish if new legislation has to be introduced to comply with the European legislation. Member States can provide for more far reaching provisions as long as they do not conflict with certain safeguards set out in the Directive such as, for example, protecting the right to freedom of expression.

The Directive will therefore set a minimum level of protection across the EU, ensuring that businesses that trade across the Single Market can be more confident that their trade secrets will receive at least a minimum level of protection, no matter which Member State they chose to operate in. Details of some of the key features that the Directive aims to introduce can be found here. It includes a new definition of ‘trade secrets’ akin to the definition set out in the UTSA, and the concept of infringing goods, which are goods, ‘the design, characteristics, functioning, production process or marketing of which significantly benefits from trade secrets unlawfully acquired, used or disclosed’ and also allows for seizure orders.

As to when the Directive will come into force, we are expecting this to be before the end of the year. Member States will then have two years to implement any laws necessary to comply. Some Member States, such as the UK in particular, already have trade secrets laws which are in many respects stronger than the Directive and so will need to do little to implement. For others the Directive will be more far reaching.

The move towards reform on both sides of the Atlantic is welcome. It recognizes the increasing challenges faced by businesses globally to keep their trade secrets secret and protected. Only time will tell whether the scope of the proposed legislation is sufficient to afford adequate protection to businesses in their respective jurisdictions.