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Federal Trade Secrets Act Changes the Face of Intellectual Property Law

May 2016

On May 11th, 2016 President Obama signed into law the Defend Trade Secrets Act (DTSA) of 2016. The DTSA provides a federal civil cause of action for trade secret misappropriation. Although the DTSA will co-exist with state-level laws modeled after the Uniform Trade Secrets Act, such as the Illinois Trade Secrets Act, it is likely to take litigation over trade secret theft out of state court and put it in front of federal judges, who may be better equipped to handle the complexities of such cases. The transition into federal court will also lead to the creation of a national body of case law on trade secret misappropriation, meaning more consistency and predictability for all parties. In spite of these advantages, however, plaintiffs may still think twice about bringing suit under the DTSA.

Notably, defendants in a trade secret misappropriation case will benefit from the narrower definition of "trade secret" and "misappropriation" under the DTSA. To qualify as a trade secret, the information at issue must derive economic value not only from not being generally known but also from not being "readily ascertainable through proper means." This additional, “readily ascertainable” requirement will prevent plaintiffs from seeking protection for information that, though non-public, is nevertheless too ordinary to qualify as intellectual property. Moreover, in addition to specifically carving out reverse engineering and independent derivation from the definition of "misappropriation," the DTSA further excludes "any other lawful means of acquisition." Together, these carve-outs will protect a broad range of standard competitive activity from overzealous plaintffs.

Perhaps most interesting, the DTSA requires all injunctions against the formation of an employment relationship to be "based on evidence of threatened misappropriation and not merely on the information the person knows." The implication seems to be that plaintiffs may not simply argue that a defendant's employment would inevitably lead to disclosure of trade secrets. In this regard, the DTSA not only provides a more advantageous body of law for defendants in trade secret misappropriation lawsuits, but may also call into question the applicability of the “inevitable disclosure doctrine” — widely used by plaintiffs since the Seventh Circuit's decision in PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995) — to suits under the DTSA.

If nothing else, the DTSA represents the most significant and far-reaching change to trade secret law in decades. Businesses that employ confidential formulas, customer lists, techniques or know-how should consult counsel to determine how the DTSA will affect them.