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Trade Secrets Go Federal

President Barack Obama signed into law the “Defend Trade Secrets Act” (DTSA) in May. Why is this important? This new law federalizes trade secret law that previously had been left to the individual states to govern. One of the key aspects of the DTSA is that companies will now be allowed to file civil lawsuits in Federal court if their trade secrets have been stolen. Before the DTSA was passed, only criminal cases filed by Federal prosecutors were allowed in Federal court, while all private trade secret civil cases were required to be filed in state court.

The balance of this article will summarize several of the key aspects of the DTSA and the ways that they may impact your business moving forward. It should be noted that the DTSA became effective immediately (as of May 11, 2016), but will only apply to trade secret misappropriations that occur on or after the law’s effective date. In addition, the DTSA does not eliminate or pre-empt state law remedies. This new Federal law supplements the state pre-existing remedies. The DTSA essentially grants companies access to Federal court, no matter the amount of damages at issue or the lack of diversity. The new law’s intent is to provide uniformity across the mish-mash of state laws.

Historically, trade secret protection was governed by each individual state. This led to inconsistency in the enforcement of trade secrets from state to state. Over the years, the Uniform Trade Secrets Act (UTSA) was enacted in various forms by forty-eight states. (Only New York and Massachusetts have never adopted a version of the USTA.) Prior to the development of the USTA, state courts would make the determination of whether information qualified as a trade secret or not. The UTSA helped to bring some consistency to enforcing one’s trade secret by defining a trade secret as:

  • information, including a formula, pattern, compilation, program, device, method, technique or process;
  • that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use; and
  • that is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Examples of information that have been found to qualify as trade secrets include customer lists, pricing lists, beverage formulas (e.g., Coca Cola), recipes (e.g., Kentucky Fried Chicken breading) and manufacturing processes.

Of significance, the DTSA has adopted a broader definition of a trade secret when compared to state laws and to the UTSA, to mean (in part), “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 now stored, compiled or memorialized, physically, electronically, graphically, photographically, or in writing.”