Congress Passes Federal Trade Secret Protection Law

Coca ColaThe protection of trade secrets is a critical component of building a competitive business. Companies must safeguard proprietary information against misappropriation by employees and others, typically through nondisclosure agreements. State law provides remedies through the court system, both to enjoin potential disclosures of trade secrets and to obtain damages for theft or misappropriation. Most states have enacted the Uniform Trade Secrets Act (UTSA) in some form, but the enforcement of these laws across state lines can be difficult. In May 2016, the U.S. Congress passed the Defend Trade Secrets Act (DTSA) of 2016, Pub. L. 114-153 (May 11, 2016), which gives the federal court system jurisdiction over claims of trade secret theft that affect interstate and international commerce. This gives trade secrets federal legal protection that is comparable in many ways to copyrights, trademarks, and patents.

The precise definition of a “trade secret” may vary from one jurisdiction to another, but every definition has common features. The UTSA, drafted by the National Conference of Commissioner on Uniform State Laws, and approved by the American Bar Association in 1986, ascribes two key elements to a trade secret. First, it must have “independent economic value” that derives from the fact that it is not known to others who might derive economic benefit from it, nor is it something they could easily figure out on their own. Second, reasonable efforts must have been made to keep it secret. The “secret recipe” for Coca-Cola is perhaps the most famous example of a trade secret.

Unlike other forms of intellectual property, such as copyrights, trademarks, and patents, no government agency registers or directly regulates trade secrets. This makes sense, considering that the whole point of a trade secret is to keep it out of the public eye. It also means, however, that the owners of trade secrets have the sole responsibility to protect and enforce their rights, using a patchwork of state laws. All but three states have enacted the UTSA. See, e.g., N.J. Rev. Stat. § 56:15-1 et seq. New York is one of the three states that has not enacted it, relying instead on common law trade secret protections. A bill is currently pending that would add the UTSA to the New York General Business Law.

Prior to Congress’ enactment of the DTSA, the Economic Espionage Act (EEA) of 1996, 18 U.S.C. § 1831, et seq., established some federal trade secret protection. The statute makes it a federal crime to steal or misappropriate trade secrets, using a definition similar to that of the UTSA, in interstate or foreign commerce. It also allows the U.S. Attorney General to file civil claims for injunctive relief in federal district court. It does not, however, extend this right to private individuals and businesses. Id. at § 1836.

The DTSA amends § 1836 to allow private civil actions by trade secret owners, provided interstate or foreign commerce is involved. It also allows federal courts to issue ex parte orders “providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” Pub. L. 114-153 at § 2.

Business formation attorney Samuel C. Berger advises Northern New Jersey and New York City businesses and business owners through fixed-fee legal-service packages that cover a wide range of matters. We help our clients navigate the many different legal issues they face, which empowers them to run their businesses more effectively. Contact us online, at (201) 587-1500, or at (212) 380-8117 today to schedule a confidential consultation with a member of our team.

More Blog Posts:

How Intellectual Property Law Can Help New York and New Jersey Businesses Protect Their Products and Services, New York & New Jersey Business Lawyer Blog, January 21, 2016

Protecting a Business Idea with New Jersey’s Trade Secrets Law, New York & New Jersey Business Lawyer Blog, May 21, 2015

Trade Secrets are Protected Under New Jersey Law, Offering Security for Small Businesses, New York & New Jersey Business Lawyer Blog, August 28, 2013

Photo credit: Skoot13 (Own work) [CC BY-SA 3.0], via Wikimedia Commons.