This month, the Defend Trade Secrets Act (DTSA) turned eight years old. Signed into law by then-President Barack Obama on 11 May, 2016, the DTSA significantly shifted the needle in IP enforcement rights in the United States. Crucially, it gave trade secret holders the option to file civil claims over a trade secret theft in federal courts, without having to include a related federal claim or prove that the parties were citizens of different states.
IAM spoke to a Silicon Valley lawyer and international trade secret expert James Pooley – described as being “instrumental” in the creation and establishment of the DTSA – to reflect on the changes it has brought in and what is coming next.
According to Pooley, getting access to federal courts in cases that have some interstate dimension was a “massive improvement in the suite of tools” that were available to trade secret owners. The DTSA has made the process of enforcement much more efficient in many ways and promoted a more unified view of what trade secret law is all about, he tells IAM.
The DTSA provided much-needed uniformity across all US states – an ambition that the Uniform Trade Secrets Act (UTSA), a piece of legislation created by a non-profit organisation Uniform Law Commission (ULC), had largely failed to achieve. Historically, the law governing trade secret misappropriation developed separately in each state at the cost of uniformity and predictability.
Statistics show that every year hundreds of trade secret owners turn to the DTSA as a means of seeking redress when their most valuable business secrets are misappropriated. In the first year of enacting the new law, the number of court cases filed in the US district courts under the DTSA amounted to 173, but already a year later in 2017, it jumped to 600, an increase of 247%, and as of 2023 grew to 749 cases, up by 333% compared to 2016. According to Docket Navigator data, as of 13 May this year, the US district courts received a total of 5,159 case filings involving DTSA claims, of which 4,097 or 79% have been terminated and 1,062 or 21% are still active.
In addition to domestic concerns over uniformity and harmonisation, the DTSA was meant to help address challenges related to trade secret misappropriation globally.
“In around 2014, there were fairly pressing issues around trade secret theft internationally and industry coalition started to come together to make sure that there were available sufficient tools,” Pooley recalls. “There was a push for legislation in the US and in the EU simultaneously, so in 2016 we got the DTSA and the European Union got the EU Trade Secrets Directive.”
While the DTSA includes no explicit provision on the law’s extraterritorial application, the fact that the DTSA was enacted as an amendment to the Economic Espionage Act of 1996 (EEA), which does have extraterritorial reach, gives an important clue on the intentions of the Congress.
In 2020, Motorola Solutions Inc v Hytera Communications Corp, became the first case where a US federal court held that a civil action for private damages under the DTSA could arise from acts of misappropriation that occur completely outside the US as long as they have connection with some activities within the US. Importantly, that ruling by the Northern District of Illinois is on appeal currently. The outcome from the US Court of Appeals is being closely watched.
“The general rule against extraterritorial application of the law is normally measured against any contrary intent from Congress,” explains Pooley. “When you read the Bill that was passed and see all of that language, you come away with the sense that Congress expected that this law would apply extraterritorially, otherwise it wouldn't help resolve some of the major dimensions of the problem that it had identified.
For example, the DTSA includes recommendations of legislative and executive branch actions that “may be undertaken” to reduce the “threat of and economic impact caused by the theft of the trade secrets of United States companies occurring outside of the United States”.
Additionally, if the intent of the Congress plays a role in how courts interpret the law, it might have an extra weight that the DTSA was passed amidst a rare bipartisan support: the Bill was unanimously approved in the Senate by a vote of 87-0, and in the House of Representatives by a vote of 410-2.
The next big thing occupying the minds of the trade secret community will be a change in how this vital form of IP is managed, Pooley expects: “Trade secrets represents an area of commercial concern that still does not get adequate attention because it happens below the awareness of the executives in a company, and I think where we're headed is a major shift in that direction.”
It's a slow-moving shift, however, which started with the America Invents Act which brought about two major changes in trade secret protection when it came into force in 2011. Although it was a patent reform statute, it introduced two impactful changes on trade secrecy and around the comfort level that companies have in treating innovations as a trade secret rather than patenting them, Pooley stresses.
“One of those important changes was the effective elimination of best mode requirement, which used to threaten the validity of patents and required companies to throw all related information into their patent applications, which would get published and thereby destroy any trade secret status,” he says. “And the other one was the prior user right, which gives companies that have been using a particular technology the assurance that they can continue to use it if they've been protecting it as a trade secret, even if some later inventor comes along and tries to patent it.”
These changes, along with companies’ struggles in terms of enforcing their patent rights, are seen as motivators pushing businesses to strengthen trade secret management. “And when there is a decision made to patent something and not to patent something else, that ‘something else’ no longer just falls on the floor and everyone forgets about it, but people recognise it is an asset. So, somebody needs to be in charge of overseeing it, making sure that it is monetised and protected,” underlines Pooley.
His feeling is that this “next big thing” – normalisation of trade secret management – will happen more slowly but it will have a “profound effect” on trade secrets protection. “My professional mission has been to elevate trade secret law and practice to the same level as the registered IP rights,” he adds.