Just last Wednesday, President Obama signed into law a major revision to U.S. trade secrets law. Entitled the Defend Trade Secrets Act of 2016 (“DTSA”), the legislation creates, for the first time, a Federal private, civil cause of action to protect trade secrets. As an additional body of protection over and beyond current state law, the legislation provides for nationwide substantive and procedural consistency and enhances the basic remedies of injunctive relief and damages. Most significantly, for the first time, it will provide for ex parte civil seizure of stolen trade secrets. The following provisions of the new law will be discussed, along with implications for labor and employment practitioners: -Details of the new law’s major provisions and the differences from and advantages over current state law; -Requirements for and limitations on obtaining ex parte seizure; -Enhanced judicial protections from disclosure in litigation; -New protections for whistleblowers who disclose trade secrets to governmental authorities or courts; -New requirements for employment agreements and policy documents containing confidentiality provisions

1. Defend Trade Secrets Act of 2016
Substance and Strategies
Q. Todd Dickinson, Stephen E. Fox
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2. Agenda
 Background
– Uniform Trade Secrets Act (UTSA)
– Economic Espionage Act (EEA)
 Defend Trade Secrets Act of 2016
– Background and rationale
– Similarities to UTSA
– Basic statutory provisions
– Employment law issues
 Strategic Considerations
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3. Basics
“Trade Secret”
 Form of intellectual property (different from patents,
copyright and trademarks)
 Focus is on proprietary, commercially valuable, information
 Examples:
– Confidential manufacturing processes
– Formulae
– Customer lists
– Business plans/strategies
– Technologies not protectable by patent
– Employee records
• M.C. Dean v. City of Miami Beach, (SDFL) (5/16/15)
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4. UTSA (1985)
 Traditionally, trade secrets were a matter for
state law before Uniform Trade Secrets Act
– 47 states and 3 others (DC, PR, VI) have adopted
• Not NY, MA (pending), NC (but very similar)
– http://www.uniformlaws.org/shared/docs/trade%20s
ecrets/utsa_finals_85.pdf
– Variation from state to state
• Modest, but sometimes case dispositive: burden of
proof; innocent acquisition; scope of information
protectable; “reasonable” measures to protect, etc.
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5. UTSA General Provisions
 Provides definitions of “trade secret,”
“misappropriation,” and “improper means”
 Statute of limitations is 3 years
 Authorizes preservation of secrecy during
legal action (i.e., gag and protective orders)
 Provides remedies of injunction, damages and
attorneys’ fees
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6. Economic Espionage Act of 1996
 First federal trade secret legislation
– Criminalizes trade secret theft (designed to address
egregious cases of trade secrect theft by foreign agents)
– DTSA is technically an amendent to EEA
 “Trade secret” and “misappropriation” definitions similar to
UTSA
 Enforced by Dept. of Justice:
– No civil cause of action, except by Attorney General
– Usually brought by local U.S. Attorney, but requires sign-off by Asst.
AG for National Security at Main DOJ
– Often difficult to generate USAtty interest
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7. Economic Espionage Act of 1996
 §1831: Economic Espionage
– Misappropriation or conspiracy to misappropriate
trade secrets, intending or knowing that the theft
will benefit a foreign power
– Penalties: up to $5M per offense; imprisonment
up to 15 years for individuals, and fines of up to
$10M for organizations
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8. Economic Espionage Act of 1996
 §1832: Theft of Trade Secret
– Misappropriated information related to or
included in a product or service, with knowledge
or intent to injure the trade secret owner
– Penalties: imprisonment for up to 10 years for
individuals (no fines), and fines of up to $5M for
organizations
– Requires forfeiture of property used in the crime
– Extraterritorial where involves U.S. citizen or
corporation
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9. Economic Espionage Act of 1996
 DOJ Prosecution Policy
– Not intended to criminalize every theft of trade secrets,
especially where civil state remedies exist
– However, availability of civil remedy should not be only
factor, since such remedies usually exist in states
– Discretionary factors:
• Scope of the criminal activity, including evidence of involvement
by a foreign instrumentality
• Degree of economic injury to the trade secret owner
• Type of trade secrets misappropriated
• Effectiveness of available civil remedies
• Potential deterrent value of the prosecution
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10. Defend Trade Secrets Act of 2016
 Rationale
 Belief that US needed to federalize trade secret law
 Trade secrets becoming more economically
important
– Over $3 billion (same as all exports to Asia)
– 2.1 million U.S. jobs
 Patent protection coming under fire
 State-by-state variations increasing
 Protection becoming more difficult
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11. Defend Trade Secrets Act of 2016
 Rationale
 Obama Administration takes note:
– Administration Strategy on Mitigating the Theft
of U.S. Trade Secrets (February 2013)
https://www.whitehouse.gov/sites/default/files/omb/IP
EC/admin_strategy_on_mitigating_the_theft_of_u.s._tr
ade_secrets.pdf
– USPTO convenes “Trade Secret Symposium”
(Jan 2015) http://www.uspto.gov/about-
us/organizational-offices/office-policy-and-
international-affairs/uspto-trade-secret-symposium
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12. Defend Trade Secrets Act of 2016
 Legislation
 Introduced originally in 113th Congress; passage
stalls in House
 Some academic criticism (concerns are increase
in length and cost of litigation)
 114th Congress reintroduced with broad,
bipartisan support (Hatch (R-UT)/Coons (D-DE)
• Passes Senate (unanimously) 4/4/16
• Passes House (410–2) 4/27/2016
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13. Defend Trade Secrets Act of 2016
 Legislation
 President Obama signs May 11, 2016
 Technically an amendment to EEA
 Text and background:
https://www.congress.gov/bill/114th-congress/senate-
bill/1890
 Legislative history:
– S. Rept. 114-220;
– H. Rept. 114-529
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14. Defend Trade Secrets Act of 2016
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15. DTSA: Outline of Provisions
 Forbes: “The New DTSA is the Biggest IP
Development in Years”
 Federal jurisdiction of theft of trade secrets in
interstate or international commerce
 Civil remedies for trade secret misappropriation
– Injunction
– Reasonable royalties
– Damages
 New remedy—civil seizure
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16. DTSA: Outline of Provisions
Employment Law issues:
 No injunction to prevent new employment
 Injunction aimed at new employment must be based
on evidence of threatened misappropriation, and not
“merely information the person knows”
 Safe harbor for “whistleblowers” and “anti-
retaliation” disclosure of trade secrets
 Whistleblower and retaliation protection must be
referenced in employment agreements and NDA’s
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17. UTSA-DTSA Similarities
 DTSA definition of “trade secret” is substantially
similar to UTSA
– Trade secret is “… 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” UTSA § 1.4/EEA
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18. UTSA-DTSA Similarities
 DTSA definition of “misappropriation” is substantially similar to UTSA
– (i) 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;
– (ii) Disclosure or use of a trade secret of another without express or implied
consent by a person who:
• used improper means to acquire knowledge of the trade secret; or
• at the time of disclosure or use, knew or had reason to know that his knowledge of the
trade secret was
– derived from or through a person who had utilized improper means to acquire it;
– acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
– derived from or through a person who owed a duty to the person seeking relief to maintain its
secrecy or limit its use; or
• before a material change of his [or her] position, knew or had reason to know that it was
a trade secret and that knowledge of it had been acquired by accident or mistake. UTSA
§ 1.2/DTSA §2(b)(3)(5)
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19. UTSA-DTSA Similarities
 DTSA definition of “improper means” is
substantially similar to UTSA
– … includes theft, bribery, misrepresentation, breach or
inducement of a breach of a duty to main secrecy, or
espionage through electronic or other means UTSA §
1.1/DTSA §2(b)(3)(6)
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20. UTSA-DTSA Similarities
Remedies:
 Injunction – UTSA § 2(a)/ DTSA §2(a)(3)(A)
– Actual/threatened misappropriation may be enjoined
• For length of time the trade secret exists
• Sufficient time to eliminate any competitive advantage
due to misappropriation
 Reasonable Royalties – UTSA § 2(b)/DTSA
§2(a)(3)(A)(iii)
– “Exceptional circumstances”
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21. UTSA-DTSA Similarities
Remedies:
 Damages – UTSA § 3/DTSA §2(a)(3)(B)
– In addition to injunctive relief, may receive damages
• Includes the actual loss AND the unjust enrichment caused by
misappropriation
– “Willful and malicious” behavior results in up to 2 times
regular damages §2(a)(3)(c)
 Attorney’s Fees – UTSA § 2 (b)/DTSA §2(a)(30(D)
– Court may award attorney’s fees to the prevailing party for
willful and malicious misappropriation or actions made in
bad faith
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22. UTSA-DTSA Similarities
Other Provisions:
 Preservation of Secrecy—permits sealing and “gag
orders” during any legal action concerning the trade
secrets
 Statute of Limitations—claims may be brought 3
years after the misappropriation is discovered or
should have been discovered by the exercise of
“reasonable diligence” (UTSA § 6/DTSA §2(a)(d)
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23. Advantages of DTSA
 Principal advantage—nationally consistent
substantive and procedural law
– With USTA state-to-state differences, while minor, can be case-
dispositive (e.g., burden of proof; threatened misappropriation,
innocent acquisition; scope of information protectable;
“reasonable” measures to protect)
 Other advantages
– Private party civil access to federal courts
– More sophisticated judiciary
– Remedies enforceable nationwide; nationwide subpoena power
– Simpler trans-state procedural issues (e.g., discovery management)
– Significant new remedy—civil seizure
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24. No State Law Preemption
 DTSA does not preempt state law (including UTSA)
– “Nothing in the amendments made by this section shall be
construed to . . . preempt any other provision of law.“
 Trade secret owners have alternative options to protect
their IP
– Depending on facts and venue considerations, trade secret
owner may decide to:
• (1) bring trade secret action in federal court under DTSA
(where the trade secret owner could also potentially bring
state law claims in federal court) or
• (2) bring state law trade secret claims in state court
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25. Jurisdiction and Venue
 Jurisdiction
– Involves interstate or foreign commerce
• DTSA (like trademark law) is grounded in
Commerce Clause v. patents/copyrights in
Constitution
– District courts have original jurisdiction
(i.e., federal question 18 USC §1836 (c))
– No diversity required
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26. Jurisdiction and Venue
 Extraterritoriality (18 USC §1837)
– DTSA applies to conduct occurring outside the
United States, if
• Offender is a natural person who is a citizen or
permanent resident alien of the United States, or an
organization organized in United States; or
• “an act in furtherance of the offense was committed in
the United States”
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27. Jurisdiction and Venue
 Venue
– Look to general venue statute (28 USC §1391) to
determine where lawsuit may be initiated
• Defendant’s residence
• Where a substantial part of the events or omissions
giving rise to the claim occurred, or a substantial part
of property that is the subject of the action is situated
• Where any defendant is subject to personal
jurisdiction
• Defendant who is not a US resident may be sued in any
judicial district
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28. Remedies – Injunction/Royalties
 Injunction
– May be pursued to prevent actual or threatened
misappropriation
– May be granted on such terms as the court “deems
reasonable”
• Different standard than eBay in patents?
– May NOT be sought to prevent changing employers if only
taking “merely on information the person knows”.
 Reasonable Royalties
– Permissible to seek under “exceptional circumstances”
where injunction would be inequitable
– Royalty period may run only from period of time where
use could have been prohibited (i.e., as a secret)
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29. Remedies - Damages
 Damages
– “Actual loss” caused by the misappropriation
– “Unjust enrichment” not addressed in actual loss
computation
– Reasonable royalty as damages calculation
method (“in lieu of other methods”)
 Enhancement
– “Willfully and maliciously” misappropriated
– Not more than 2 times regular damages awarded
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30. Remedies – Attorney’s Fees
 Attorney’s fees may be awarded if
– Misappropriation claim was made “in bad faith”
• “May be established by circumstantial evidence”
– Motion to terminate injunction is made or
opposed “in bad faith”
– Trade secret is “willfully and maliciously
misappropriated”
– “Reasonable” attorney’s fees may be awarded
• Octane Fitness standard?
• Costs?
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31. Remedies – Ex Parte Civil Seizure
Civil Seizure
 New remedy—potentially very powerful
 Order may issue “only in extraordinary
circumstances”
 Limitations
– Stringent requirements for issuing
– Stringent requirements for elements of order itself
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32. Remedies – Ex Parte Civil Seizure
– Application for Seizure Order; DTSA §2(b)(2)(A)(i)
– Ex parte application for an order made by made
“by affidavit or verified complaint”
– May be sought only in “extraordinary
circumstances”
– Seizure is appropriate only when “necessary to
prevent the propagation or dissemination” of the
trade secret
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33. Ex Parte Seizure Order
 Requirements for issuing order: DTSA §2(b)(2)(A)(ii)
– Appropriate when ordinary injunction “would be inadequate”
because party would “evade, avoid or otherwise not comply”
• Legislative history examples:
– Fleeing the country
– Planning to disclosure immediately
– “Otherwise not amenable” to enforcement
– Immediate and irreparable injury
– Harm to applicant of denying order …
(1) Outweighs harm to “legitimate interests” of ‘Seizee’
(2) Substantially outweighs harm to third parties
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34. Ex Parte Civil Seizure
 Applicant must show “likelihood of success” that:
– Information is a trade secret
– 'Seizee' misappropriated by “improper means”
– ‘Seizee’ has “actual possession” of property to be seized
– Application describes matter to be seized “with reasonable
particularity” and identifies its location
– 'Seizee' would otherwise “destroy, move, hide or otherwise
make inaccessible to the court” if applicant put ‘Seizee' on
notice
– Applicant “has not publicized” the requested seizure
• “Don’t want to make news” – Leg history
• Query—only an “applicant” … what happens if media
monitoring court dockets publicizes application?
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35. Ex Parte Civil Seizure
 Elements of the Order: DTSA §2(b)(2)(B)
– Set forth findings of fact and conclusions of law
– Narrowest seizure necessary to achieve purpose
• “Minimizes interruption” to business of third parties
• “Does not interrupt” legitimate business operations of ‘Seizee‘ “to the
extent possible”
– Should be combined with another order prohibiting access or copying by
either party to “prevent undue damage” until hearing
– If court does grant access to either, must comply with court custody
requirements
– Scope:
• Hours of execution
• Whether force can be us to “access locked areas”
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36. Ex Parte Civil Seizure
 Elements of the Order, cont’
– Set hearing date: “earliest possible time”, but no later
than 7 days after order, unless both consent
– Post bond: Applicant must provide adequate security
for damages for wrongful or wrongfully attempted
seizure
 Protection from publicity: Court shall take
appropriate action to protect ‘Seizee' from publicity
about the order of seizure
• Query—does this run afoul of First Amendment
(i.e., gag order)?
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37. Civil Seizure
 Protection of Seized Materials
– Court shall take custody and secure from physical
and electronic access
– If information is on “storage medium”, court shall
prohibit connection to Internet until hearing
– Confidentially of other unrelated information
shall be protected, unless 'Seizee' consents
– Special Master may be appointed to protect
misappropriated information and return
unrelated property (and is bound by NDA)
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38. Civil Seizure
 Service of Order
– Must be made by federal law enforcement
officer (presumably U.S. Marshall, possibly
FBI)
– State or local agents may also participate
– Applicant or agent may NOT participate
– Technical expert may be allowed to help
facilitate (and is bound by NDA)
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39. Civil Seizure
 Seizure Hearing:
– Court that issues order shall hold hearing
on the date set in order
– Burden of proof is on applicant
– Dissolution of order permitted on motion
any time by 'Seizee' or harmed third party,
with notice to applicant
– Time limits for discovery may be set to
avoid “frustration of purpose of hearing”
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40. Wrongful Seizure and Encryption
 Wrongful Seizure
– If wrongful or excessive seizure, 'Seizee' has cause of action
against applicant
– Relief: same as under Lanham Act: 15 U.S.C. §1116(d)(11)
• “Lost profits, cost of materials, loss of good will, and punitive damages
in instances where the seizure was sought in bad faith, and, unless the
court finds extenuating circumstances, to recover a reasonable
attorney’s fees”
• Posted security doesn’t limit amount of relief
 Motion for Encryption
– Any person who “claims to have an interest” in the seized
material may move for encryption in method of their choice
– May be heard ex parte
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41. Whistleblower Protections
 DTSA provides safe harbor to whistleblowers who provide
trade secrets to government
 Whistleblower entitled to civil/criminal immunity for disclosing
trade secret so long as purpose of reporting or investigating is a
suspected violation of law and is made to:
– Whistleblower's attorney
– Government
– Court-filing under seal
 If whistleblower files lawsuit for retaliation against employer
based on reporting of a suspected violation of law,
whistleblower may also use the trade secret in that anti-
retaliation lawsuit
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42. Whistleblower Protections
 Employer must provide notice of immunity in any
employment contract that governs the use of trade
secret or confidential information
 Notice of immunity must be provided in the contract
itself or the contract must cross reference to a company
policy document that includes discussion of immunity
 If employer fails to include notice in contract, it is
prohibited from being awarded exemplary damages or
attorneys' fees in suit under DTSA
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43. Miscellaneous Provisions
 Statute of Limitations: 3 years after discovery
or should have been discovered with
“reasonable diligence”
 Effective Date: Applies to acts occurring on or
after signing
 Increases EEA $5M limit to “greater of $5M or
3 times value of TS “to the organization”
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44. Miscellaneous Provisions
 Non-disclosure: Court won’t disclose asserted
information without sealed submission and
can’t be used later against owner
 RICO: EEA criminal provisions are now
“predicate offenses” under RICO racketeering
definition
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45. AG Reporting Obligations
 DTSA fails to provide protection to US companies for
trade secret theft occurring abroad
 But, AG must submit biannual report House/Senate
Committees
– Must report on scope/breadth of trade secret theft from
US companies occurring outside US and extent such theft
is being sponsored by foreign governments/agents
– Report must discuss mechanisms for US companies to
prevent trade secret theft abroad and identify any country
whose laws on trade secret theft pose problem for US
companies
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46. Contact Information
Q. Todd Dickinson
Shareholder | Polsinelli
Washington, D.C.
202.626.8379
tdickinson@polsinelli.com
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47. Contact Information
Stephen E. Fox, Esq.
Shareholder | Polsinelli
Dallas, TX
214.661.5582
sfox@polsinelli.com
@StephenEFox
https://www.linkedin.com/in/stephenefox
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