May 11, 2016: President Barack Obama signed into law S. 1890, the “Defend Trade Secrets Act of 2015,” amending 18 U.S.C. §1836(b) to create a federal civil remedy for trade secret misappropriation. The legislation enumerates procedures for obtaining civil seizure orders, injunctive relief, and damages for trade secret misappropriation and unjust enrichment where the trade secret involves a product or service used (or intended to be used) in interstate or foreign commerce.
A significant feature of the Act is civil seizure. Based on an affidavit or verified complaint the court may upon ex parte application (but only in extraordinary circumstances) issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action. Remember that ex parte means the defendant (or alleged wrong-doer) hasn’t had a chance to defend the allegation of misappropriation. Therefore, courts carefully balance the asymmetry of the representation against the urgency and potential liability of the trade secret disclosure. The eight (8) requirements that must be clearly met include:
Only Remedy. No other form of equitable relief would be adequate because the defendant would “evade, avoid, or otherwise not comply with such an order;”
Immediate Danger. An immediate and irreparable injury will occur if such seizure is not ordered;
Balancing of Harm. The harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered of granting the application and substantially outweighs the harm to any third parties who may be harmed by such seizure;
Likelihood of Success Proving. The applicant is likely to succeed in showing that a. the information is a trade secret; and b. the person against whom seizure would be ordered i. misappropriated the trade secret of the applicant by improper means; or ii. conspired to use improper means to misappropriate the trade secret of the applicant;
Possession of Secret. The person against whom seizure would be ordered has actual possession of a. the trade secret; and b. any property to be seized;
Property and Location. The application describes with reasonable particularity the matter to be seized and, to the extent reasonable under the circumstances, identifies the location where the matter is to be seized;
Likelihood of Destruction or Hiding. The person against whom seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person; and
No Publicity. The applicant has not publicized the requested seizure.
The Act defines with precision what elements must be in the judge’s order (findings of fact, scope of law enforcement authority, minimizes business interruptions, protects confidentiality, requires applicant to post a bond).
Hearing: As early as possible but not later than 7 days after the order issues a hearing must be set. The burden of proof at the hearing is on the applicant. The party subject to the order may move to dissolve or modify the order.
Injunctions: may be issued to prevent actual or threated misappropriation but the injunction may not: 1) prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows; or 2) otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.
The court may award damages for actual loss caused by the misappropriation of the trade secret; and damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss. Alternatively, in lieu of damages measured by any other methods, the damages caused by the misappropriation measured by imposition of liability for a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret.
Willfulness. If the trade secret is willfully and maliciously misappropriated, award exemplary damages in an amount not more than 2 times the amount of the damages awarded
Counterclaim. If a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, award reasonable attorney’s fees to the prevailing party.
Statute of Limitations
A civil action may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered. For purposes of this subsection, a continuing misappropriation constitutes a single claim of misappropriation.
Misappropriation: acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or disclosure or use of a trade secret of another without express or implied consent by a person who used improper means to acquire knowledge of the trade secret and had knowledge it was a trade secret. Knowledge Requirement: the defendant must have known or had reason to know the trade secret was: (1) received from a person that improperly obtained it; (2) acquired under circumstances with duty to maintain secrecy; or (3) derived from or through person who owed duty to keep it secret. Alternatively, the defendant knew the information was indeed trade secret and that it had been acquired by accident or mistake before a material change of the position of the person.
Improper: includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. It expressly excludes reverse engineering, independent derivation, or any other lawful means of acquisition.