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Congress Creates Private Right of Action for Trade Secret Misappropriation

Congress Creates Private Right of Action for Trade Secret Misappropriation

Longstanding federal statutes have focused intellectual property law protection on patents, copyright and trademarks, while states have been largely left to protect trade secrets. That balance fundamentally shifted this month when President Obama signed the Defend Trade Secrets Act ("DTSA") and created a federal cause of action for trade secret misappropriation that will supplement, but not replace, the existing state law frameworks.

The DTSA provides novel, and in some cases, powerful remedies to protect and, if they have already been misappropriated, to prevent the further dissemination of,  trade secrets.  Perhaps the most significant departure from the law in most states, the DTSA provides that plaintiffs who have had trade secrets misappropriated may seek ex parte seizure of property to prevent the dissemination of trade secrets under certain extraordinary circumstances. While it has the potential to quickly and efficiently protect trade secrets, some of the details of how ex parte seizure will develop in practice are far from clear, as the DTSA does not define "extraordinary circumstances."

The DTSA's cause of action for trade secret misappropriation uses the same definition for trade secret as the already existing criminal cause of action and defines misappropriation in a similar manner to the Uniform Trade Secrets Act, already adopted by most state codes. While the DTSA does not preempt existing state laws, businesses that operate in a large number of states may prefer uniformity of practice, even if it means giving up advantageous differences in particular state laws.

While the substantive law of trade secret misappropriation has a single definition, the relief available at the federal level may change depending on the state. This is because the DTSA does not allow federal courts to issue injunctive relief that prevents a person from entering an employment relationship or conflict with state laws that prohibit restraints on lawful professions, trades, or business. It also may encourage some trade secret holders to seek relief in state courts where they can seek bars on employment with competitors for a time.

While the DTSA represents a significant development in the federalization of trade secret laws and strengthens their protection in many ways, it will take time for courts to develop the precedent necessary to determine how large of a departure from existing state law the new statute represents.