Network Firm News

Wednesday, June 01, 2016

THE NEW FEDERAL TRADE SECRETS ACT:
A LIMITED INVITATION TO EX PARTE SEIZURES

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (“DTSA”).

This act effectively creates a federal trade secrets law with some interesting procedural aspects.  For the first time in American jurisprudence, a federal trade secrets act permits litigants to prosecute and defend trade secrets or confidential information cases in federal court rather than state court.  The law finds its constitutional foundation under the commerce clause.

Why is this new law so important?  It is important because it nullifies the many differences in the trade secrets law of many states, and presents a uniform substantive and procedural vehicle that may be used in any federal court in any state in the Union.

Curiously, the new statute was enacted as an amendment to the Economic Espionage Act (“EEA”).  However, the EEA permitted only criminal cases that were limited to the Department of Justice as the sole filer brought on behalf of the United States of America.

In a 2012 version of the DTSA, a provision permitting ex parte seizure orders to prevent the dissemination of a trade secret, was highly criticized, even though there were similar provisions in both the Lanham Act and the Copyright Act enabling such ex parte procedures. For many years, those ex parte provisions have been used quite successfully in trademark, trade dress and copyright matters to confiscate counterfeit CDs, DVDs, other forms of electronic duplication of movies, television shows and software, as well as counterfiet stuffed animals (“California Raisins,” “Gumbys” and “ Pokies”).

In the current version of the act, the ex parte provision has been balanced with a provision that such procedures should only be authorized in “extraordinary circumstances.”

Additionally, the new act provides that if a recipient of such an ex parte seizure order believes that the procedure has been “abused,” the offended party may seek recovery of its damages.

Other limiting provisions include a provision that prevents injunctions that unfairly limit employee mobility in so-called “professional divorce” cases, usually filed by former employers to prevent an employee from leaving employment in order to go to work for a competitor or from starting a business in competition with his/her current employer.  And another provision prevents usage of the law to attack a whistleblower who discloses trade secrets in the course of reporting unlawful conduct.

Those restrictive provisions will limit use of the new DTSA in the trade secrets area, as opposed to the very successful ex parte seizure provisions found in the Lanham Act and the Copyright Act.  Just what is an “abuse” of the ex parte provisions will be challenged.  The law is completely silent as to how the courts are to determine “abuse,” apparently leaving that issue to the courts.

Inasmuch as such ex parte seizures have been successful for years under the Lanham Act and the Copyright Act, without such limiting provisions, why should there be such provisions in the new DTSA?
 

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