Obama Signs Defend Trade Secrets Act Into Law: Important New Tool for Victims of Data Breach

On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law.  Previously, companies could only bring misappropriation of trade secrets claims under state law.  (Unless they were able to convince federal prosecutors to bring criminal charges under the Economic Espionage Act, which rarely ever happens.)  Now, companies have the option of pursuing a federal cause of action for misappropriation of trade secrets, which brings with it easier access to federal courts and will eliminate disputes over which state’s trade secret law applies.  The DTSA also provides a new powerful tool generally not available under state law: an ex parte seizure proceeding.  The DTSA allows courts in “extraordinary circumstances” to order the seizure of property necessary to prevent the immediate dissemination of trade secrets.

The DTSA is particularly relevant to data security because more and more companies are storing their crown jewels — their trade secrets — digitally.  This creates incentives for hackers, competitors, and current and former employees to gain unauthorized access to the company’s network to steal its valuable and confidential information.  Once trade secrets are compromised and publically disseminated, there is often no way to put the genie back in the bottle—the permanent damage has already been done.  This makes quick detection and response crucial when a breach threatens the loss of trade secrets.  The DTSA’s ex parte seizure proceeding is a new and potentially crucial mechanism for companies to prevent the complete loss of their trade secrets through unauthorized dissemination.

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