Late yesterday, the House of Representatives joined the Senate in passing a sweeping new statute that creates a new federal civil cause of action for trade secret theft. The new statute, called the Defense of Trade Secrets Act (DTSA), can be found here and is expected to be signed into law by the President within the next few days.
Where will we first see the effects of the new federal trade secret law? Answer: in the hundreds (thousands?) of currently pending state court trade secret misappropriation cases. Soon after the DTSA becomes effective there will be a significant increase in federal district court decisions being relied upon in state courts to explain and construe existing state trade secret statutes.
As things stand now, trade secrets are generally protected by state statutes that have adopted the Uniform Trade Secrets Act (UTSA). California enacted its version of the UTSA in 1984. Over time, all states have adopted some version of the UTSA except for New York and Massachusetts (trade secrets are protected in those jurisdictions under the state common law).
It has become customary for courts in one state to cite trade secret decisions from other states to explain or construe USTA provisions. California is a good example. In Altavion, Inc. v. Konica Minolta Sys. Lab. Inc., 226 Cal. App. 4th 26, 41 (2014), the court said that “[n]early all states have adopted the UTSA; although there are some variations, case law applying UTSA enactments in other states is generally relevant in applying California’s UTSA.”
Fast forward to the upcoming enactment of the DTSA, which is widely regarded as having been harmonized with the earlier UTSA on which most of the state trade secret acts are based. See James Pooley’s excellent post WHAT YOU NEED TO KNOW ABOUT THE AMENDED DEFEND TRADE SECRETS ACT January 31, 2016 Guest Post, Patently-O, for specific details.
While it is expected that many trade secret owners will bring their enforcement actions in federal court – the common wisdom is that federal courts are better equipped to handle cases of interstate or international misappropriation of trade secrets – the gestation of these cases to final judgment will take many months if not years.
What we will see much sooner, most likely within weeks if not months of the first federal district court filings under the DTSA, is the citation in currently pending state court trade secret cases to a brand new, fast growing and ultimately large body of federal decisional law interpreting similar terms in the state UTSA acts. This would be entirely consistent with the current state court practice of looking to decisions from courts in other states for explanation and implementation of similar UTSA legislation.
True enough, federal courts for some time have interpreted state trade secret laws where they have had diversity jurisdiction over the trade secret litigants. The difference going forward is that there will be many more federal court cases interpreting effectively the same uniform state laws, and consequently greater pressure on state courts to harmonize their decisions across state lines.
The issues in current trade secret litigation are myriad, running the gamut from what is sufficient pleading of a trade secret to whether there is right to jury trial on recovery of reasonable royalty damages for the misappropriation of a trade secret. There are numerous instances in which the precedent in a state jurisdiction is silent on such issues or worse there are conflicting interpretations of the same UTSA language across the courts in different states. The anticipated federal decisional law – much as has occurred with patents – should significantly contribute to a uniform body of trade secret law that is national in application.