Protection of Trade Secrets: The Uniform Trade Secrets Act and the Federal Defend Trade Secrets Act

For many years, owners of trade secrets have been able to enforce their rights using the Uniform Trade Secrets Act (“UTSA”). Most states, including Virginia, have adopted the UTSA. The UTSA allows civil lawsuits in state courts.

Until 2016, there was no Federal statute directly governing the law of trade secrets. In May 2016, Congress enacted the Defend Trade Secrets Act (“DTSA”). The DTSA creates Federal statutory law protecting trade secrets and allows civil lawsuits in Federal courts to enforce rights in trade secrets. The DTSA creates new remedies for owners of trade secrets to protect their secrets.

The DTSA and UTSA are similar but not identical. Here is a summary of the provisions of the two statutes:

1. What is a Trade Secret?

DTSA
“all forms and types of financial, business, scientific, technical, economic or engineering information…whether tangible or intangible, and whether or how stored…physically, electronically, graphically, photographically, or in writing if:

DTSA
“all forms and types of financial, business, scientific, technical, economic or engineering information…whether tangible or intangible, and whether or how stored…physically, electronically, graphically, photographically, or in writing if:
(A) the owner thereof has taken reasonable steps to keep such information secret; and

(B) the information derives independent economic value, actual or potential, from not being generally known to, and not attainable through proper means by, another person who can obtain economic value from the disclosure or use of the information”.

18 U.S.C. § 1839 (3)
UTSA
Similar to DTSA. UTSA does not specifically identify “financial, business, scientific, technical, economic, of engineering information” to be trade secrets. UTSA permits parties other than the “owner” of the trade secret to protect it. But DTSA defines “owner” to include a lawful licensee.

Virginia Code §59.1-336.

2. What is Misappropriation?

DTSA
“(A) Acquisition of a trade secret of another by a person who knows…that the trade secret was acquired by improper means; or

(B) disclosure or use of a trade secret without express or implied consent… [of the owner of the trade secret]”.

18 U.S.C. § 1839 (5)
UTSA
Similar to DTSA.

Virginia Code §59.1-336

3. What is “Improper Means”?

DTSA
Similar to UTSA.

DTSA defines “reverse engineering, independent derivation, or any other lawful means of acquisition” not to constitute “improper means”. UTSA lacks this exclusion.

18 U.S.C. § 1839 (6)
UTSA
“includes theft, bribery, misrepresentation, use of a computer or computer research without authority, breach of a duty or incident of a breach of a duty to maintain secrecy, or espionage through electronic or other means”.

Virginia Code §59.1-336

4. What is the Statute of Limitations?

DTSA
Three years from the date the misappropriation is discovered or reasonably should have been discovered.

18 U.S.C. § 1836 (d)
UTSA
Same as DTSA.

Virginia Code §59.1-340

5. Whistleblower Exception

DTSA
Disclosure of a trade secret is made
“(1) in confidence to a…Government Official…, or to an attorney; and

(2) solely for the purpose of reporting or investigating a suspected violation of law; or

(3) in…lawsuit…if such filing is made under seal.”

18 U.S.C. § 1833

The “whistleblower” exception applies both to employees and independent contractors.
UTSA
No similar provision.

6. Required Notice of Whistleblower Exception

DTSA
Employers must notify employees and independent contractors of the whistleblower exception outlined in point 5 above. The notice must be in the employee’s or independent contractor’s contract or in another document if the contract refers to it.

18 U.S.C. § 1833
UTSA
No comparable provision.

7. Consequence of Failure to Provide Notice

DTSA
No award of exemplary damages or legal fees against employee who did not receive notice that the “whistleblower” exception exists.

18 U.S.C. § 1833
UTSA
No comparable provision.

8. Remedies

DTSA
a. Damages
(1) Plaintiff’s actual loss;
(2) Defendant’s unjust enrichment;
(3) Reasonable royalty imposed on defendant;
(4) Exemplary damages up to two times plaintiff’s actual damages (if misappropriation is wanton and malicious).
(5) Prevailing party’s legal fees if
(i) defendant misappropriated trade secret willfully and maliciously, or
(ii) plaintiff brought lawsuit in bad faith.

b. Injunctions
Available.

c. Civil Seizure
Upon ex parte application in “extraordinary circumstances”.
18 U.S.C. § 1836
UTSA
a. Damages
Similar to DTSA.
Virginia Code §59.1-338







b. Injunctions
Similar to DTSA.
Virginia Code §59.1-337

c. Civil Seizure
No comparable provision.

Comment

There have been relatively few cases using the DTSA to date. Of the cases reported, the civil seizure remedy has been granted rarely.

As a planning matter, employees’ contracts should be modified to create the “whistleblower” exception noted in Section 5 above. If an employer fails to create a whistleblower exception, then an employer who is otherwise entitled to exemplary damages and legal fees against an employee who misappropriates a trade secret cannot have those remedies against that employee. The other remedies afforded by the DTSA (damages, injunctions) and remedies granted by the UTSA remain available.

The DTSA creates important Federal statutory protection. Before the DTSA, only state law provided protection. Whereas a Federal statute preempts state law, it does not preempt other Federal statutes. In the past, decisions under the UTSA have been defeated using Federal patent law and Federal copyright law. But the Federal copyright or patent would not necessarily preempt a claim based on the Federal DTSA. The DTSA creates useful access to Federal court in trade secret cases without which parties from the same state would have to bring their lawsuit in state court using the UTSA.

Finally, the DTSA also creates criminal penalties for theft of trade secrets. Such crimes are prosecuted by the Government.

Please contact Randall K. Bowen if you would like to discuss the DTSA or UTSA or have questions about this article.