Civil Seizure and the 2016 Trade Secrets Act

Small business tips - SandGarden Law GroupWhat civil seizure is and how the 2016 Trade Secrets Act affects it

In our last post we explained the basic tools used to protect Trade Secrets such as NDA’s Employee and Independent Contractor Agreements, and state civil law actions.

Today we will start exploring the new tools available under the 2016 Defend Trade Secrets Act (DTSA). Its important to remember that these new tools affect all businesses, not just those who think they have trade secrets to defend.

First let’s look at the new law’s civil action provisions. If a business has a complaint that another business or individual has stolen or disclosed trade secrets the DTSA allows them to bring an action in Federal District Court. The DTSA requires that the violation take place in “interstate commerce”, but currently that’s a very vague and undefined term. It could be interstate commerce if your trade secret relates to a product that may be bought or sold over the internet, or if the stolen information was posted to website or uploaded to the cloud. So until we get more lawsuits helping to provide guidelines and boundaries to the DTSA, assume that it is possible that your trade secret is part of the interstate commerce network.

The new tool under the DTSA that has everyone concerned is the right to “civil seizure”. Most current state law trade secret protections don’t give this power.

What is civil seizure?

Civil seizure is the court’s power to confiscate property that may contain disputed trade secrets in order to prevent the trade secrets from being improperly used or disclosed while the case is being litigated. Let’s look at a hypothetical example to understand it. Business A hires Employee X, who is a former employee of their rival, Business B. Business B believes that Employee X is using proprietary tools or knowledge (trade secrets) in her new job that belongs to Business B. Business B can sue Business A (or Employee X) for trade secret infringement, but what if Business A’s product is released or they publish the trade secret information while the case is being fought in court?

The new civil seizure provision would allow the court to hold or seize Business A’s product that might be incorporating Business B’s trade secrets, or order Business A to delay release of the product. As you can see, civil seizure can be a very powerful, or very dangerous, tool depending on where you stand in the dispute. For Business A, civil seizure could cost them millions in lost profit or contracts, even if they are innocent of wrongdoing. For Business B, civil seizure could mean the difference in preventing unrecoverable losses that might happen even if they win the suit.

The new DTSA has put several safeguards on the power of civil seizure. The court must find that no other remedy will protect the victim; that the victim will suffer irreparable harm; and that there is sufficient proof that the accused person or company actually has possession of the trade secret in question.

For now, until we get more litigation and better guidelines, the best course for small business owners is caution. If you find yourself on either side of a trade secret dispute, find a competent attorney right away to help you navigate any civil seizure issues and protect your business.

If you have questions, ask us at SandGarden Law.

SandGarden Law Group of Sunnyvale, CA provides creative and accessible legal solutions for individuals, families, and small businesses.

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