By Dennis Crouch
With today’s 410-2 House vote, the Defend Trade Secrets Act (DTSA) has now passed both the House and Senate and is headed to President Obama for his expected signature. The DTSA amends the Economic Espionage Act to create a private civil cause of action for trade secret misappropriation based upon the Congressional sense that trade secret theft exists and is harmful. Trade secret misappropriation (as a civil matter) has previously been purely a matter of state law. Although there is substantial uniformity between the states, there are also a number of differences and perceived procedural weaknesses. The DTSA would not eliminate or preempt the various state trade secret rights but rather would operate as an additional layer of potential protection. The law is designed to go into effect on its day of enactment and apply to any misappropriation that occurs on or after that date.
On March 10, 2017, the University of Missouri’s Center for Intellectual Property and Entrepreneurship (CIPE) along with our new Business, Entrepreneurship, and Tax Law Review (BETR) will host a symposium on Implementing and Interpreting the Defend Trade Secrets Act. I expect that we will live-stream the event and will also publish speaker articles in BETR. There is a lot to figure out. Contact me if you are interested in sponsorship opportunities (email@example.com).
The central provision of the DTSA will be codified as 18 U.S.C. § 1836(b) and reads:
An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.
Defining Trade Secret: The DTSA broadly defines the term “trade secret” to mean “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, the another person who can obtain economic value from the disclosure or use of the information.” Although this definition is broad and certainly includes abstract ideas and laws of nature, it might not encompass information that is only stored in the human mind.
Defining Misappropriation of a Trade Secret: The statute also defines “misappropriation” in detail. My rough approximation is as follows: without permission (A) obtaining a trade secret that was knowingly obtained through improper means or (B) disclosing or using a trade secret without knowing either (1) that it is a trade secret or (2) that it was obtained through improper means. These “improper means” include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” However, misappropriation does not include “reverse engineering, independent derivation, or any other lawful means of acquisition.” The DTSA does not otherwise include a more general fair-use or news-reporting exception. However, the First Amendment will certainly serve as a backstop. Further, these definitions do not include any express territorial limit – it will be very interesting to see the extent that these limits will be implied into the law. Thus, if a U.S. company is holding trade-secrets in India that are stolen in India, could the U.S. company bring action against the Indian entity that caused the injury (presuming personal jurisdiction over the defendant)?
Remedies Civil Seizure: A key procedural benefit of the DTSA is to offer a mechanism for Civil Seizure ordered by courts and enforced by Federal, State, and/or local law enforcement as a preventive measure (akin to a temporary restraining order).
Remedies: Once misappropriation is found, the court will be authorized to grant injunctive relief as “reasonable.” If “exceptional circumstances” render injunctive relief is “inequitable” then a court may order a reasonable royalty for the misappropriator’s continued use of the trade secret. Depending upon how the statute is interpreted, this setup appears to create a presumption of injunctive relief – a stark difference from contemporary patent law doctrine under eBay v. MercExcange. The statute also provides for compensatory damages for either (i): (I) “actual loss of the trade secret” and, in addition (II) “any unjust enrichment” not compensated in (I); or (ii) a reasonable royalty for the use. Willful misappropriation can double damages. In these calculations, I suspect that courts will take into account both the market-value of the trade secret as well as the “expenses for research and design and other costs of reproducing the trade secret” that were avoided by the misappropriation. The provision also includes an attorney fee shifting provision limited to cases involving bad-faith or willful-misappropriation.
Remedy against Former Employees: Most trade secret cases involve former employees moving (or starting-up) to a competitor. A major concern raised against early versions of the bill was that the DTSA would empower employers to prevent such movement. As amended, the bill now indicates that injunctive relief that would “prevent (or place conditions on) a person from entering into an employment relationship” must be “based on evidence of threatened misappropriation and not merely on the information the person knows.” Of course, such “threat” does not necessarily mean that the employee expressly threatened misappropriation but rather will likely be based upon circumstantial evidence regarding likelihood of misappropriation (i.e., ‘threat level’). In addition, the injunction preventing or limiting employment cannot “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.” This bit appears to be directed toward giving credence to non-compete and other limits in various states. However, of key importance is that it only limits injunctive relief and does not appear to limit any cause of action against former employees. As a consequence, this sets the likelihood of a fight between certain state employment laws that favor employee rights against the new federal trade secret law.
Whistle Blowers: Professor Peter Menell was instrumental in proposing a public policy immunity provision that is included in the DTSA. The provision would offer immunity from liability (whistle blower protection) for confidential disclosure of a trade secret to the Government or in a Court Filing (made under seal). The provision includes a notification requirement that employers should immediately implement.
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 Although trade secret rights are thought of as a form of intellectual property, the bill is clear that the DTSA “shall not be construed to be a law pertaining to intellectual property.” The result of this could, for example, mean that the intellectual property licensee exception in bankruptcy law would not apply to licenses of trade secret information. See 11 U.S.C. § 365(n). [In Bankruptcy Law, Trade Secrets are defined as a form of IP, but it is unclear to me at this point which statute would prevail.] Because the DTSA is an amendment to the Economic Espionage Act – a criminal law – it will also be codified in Title 18 of the United States Code that is generally directed to “crimes and criminal procedure.” Although I don’t know exactly, there may be aspects of Title 18 (such as general definitions) that will shape the interpretation of federal trade secret law. As an example, 18 U.S.C. § 2(b) offers a “general principle” of respondeat superior that “[w]hoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.”
 Consider the popularity of the Uniform Trade Secrets Act in the various states.
 Jury trial should still apply to the extent it has in state cases.
 The Economic Espionage Act already includes a rule of construction that the statute “shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession, or territory law for the misappropriation of a trade secret, or to affect the otherwise lawful disclosure of information by any Government employee under section 552 of title 5(commonly known as the Freedom of Information Act).” The DTSA reaffirms this principle by stating that “[n]othing in the amendments made by this section shall be construed to modify the rule of construction under section 1838 of title 18, United States Code, or to preempt any other provision of law.” The bill provides for original jurisdiction of these trade secret cases in federal district court. However, it does not create exclusive jurisdiction – as such it would be proper for a party to bring such a claim in state court (when permitted by the state court). However, in that case, the other party may attempt to remove the case to Federal Court. You might also query as to whether the federal claim is a ‘compulsory claim’ under the law such that if someone brings a state-law claim and loses they would later be estopped from bringing the federal claim.
 There may also be constitutional limitations on a company owning and controlling that information.
 This provision suggests by implication that misappropriation may be non-willful despite the fact that the misappropriation definition includes a mens rea element.
 My understanding is that Jim Pooley and Mark Lemley were instrumental in suggesting the addition of this provision that has now put the Bill in form where it is broadly supported by the politicians.
 Improperly obtaining a trade secret is a form of misappropriation – this creates some potential confusing situations in the interpretation of the provision.