A Quick Guide Comparing the Defend Trade Secrets Act and the EU Trade Secrets Directive

June 01, 2016

By Anand B. Patel, Jeff Pade, Victoria Cundiff & Bradford Newman

The European Commission unanimously adopted the EU Trade Secrets Directive on Friday, following the recent passage in the U.S. of the Defend Trade Secrets Act (“DTSA”). Both regimes seek to provide uniformity of trade secret law across their respective jurisdictions, recognizing the substantial value of trade secrets to the economy. It is little surprise that—particularly in light of the similar foundational provisions found in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS Agreement”)—both the DTSA and the Directive take analogous stances on the basics of trade secret law, including what constitutes a trade secret and how a violation occurs. The below table compares the two frameworks and highlights important nuances in each locale’s rules that affect how companies should consider enforcing trade secret rights across those major international jurisdictions.

Aspect

DTSA

Directive

Notes

Trade Secret Definitions

Covers “all forms and types of financial, business, scientific, technical, economic, or engineering information ... if (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information”
Covers information that “(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is secret; [and] (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret”

Similar scope

Requirements for Misappropriation

Wrongful acquisition
Wrongful use or disclosure
Wrongful acquisition
Wrongful use or disclosure, including in breach of a confidentiality agreement or other duty not to disclose

Similar scope

Standing

Owner
Owner
Potentially licensee or others who “lawfully control[]” the trade secret

Directive arguably may provide broader standing to non-exclusive licensees or others who control the trade secret

Lawful Conduct

Reverse engineering
Independent derivation
Other lawful means of acquisition
Independent development
Reverse engineering
Other honest commercial practices
“[E]xercise of the right of workers or workers’ representatives to information and consultation in accordance with Union law and national laws and practices,” provided that such disclosure was necessary for that exercise
“[E]xercise of the right to freedom of expression and information which encompasses media freedom and pluralism,” as set out in the Charter of EU Fundamental Rights

Directive presents some broader, as of yet undefined, potential carve-outs

Remedies

Remedies (cont.)

Monetary damages (lost profits, unjust enrichment, reasonable royalty)
Monetary damages (lost profits, unjust enrichment, reasonable royalty)
“Member States may limit the liability for damages of employees towards their employers for the unlawful acquisition, use or disclosure of a trade secret of the employer where they act without intent”

Each regime provides specific variations on similar remedies

Equitable relief, including “lead time” injunctions to remedy unfair advantage
Equitable relief, including “lead time” injunctions to eliminate unfair advantage if trade secret is not in public domain through no fault of respondent
Affirmative measures to protect trade secrets
The destruction of all or part of any document, object, material, substance, or electronic file embodying the misappropriated trade secret
Ex parte seizure of “property necessary to prevent the propagation or dissemination” of the alleged trade secret, in extraordinary cases upon proper showing by movant and posting of bond
Seizure of infringing goods (“goods whose design, characteristics, functioning, manufacturing process or marketing significantly benefits from trade secrets unlawfully acquired, used or disclosed”) so as to prevent entry into the market; withdrawal of goods from market; silent on whether seizure can be ex parte
Orders to preserve evidence may be available in some EU Member States under existing law

Both jurisdictions require movant to come forward with evidence and provide for award of compensation for improper seizures and in other circumstances evidencing abuse

Enhanced/punitive damages of up to two times damages where willful and malicious misappropriation
No enhanced/punitive damages; but Directive requires Member States to ensure that where court finds claim is manifestly unfounded and initiated in bad faith, it may impose sanctions and order publication of the decision, without prejudice to right of respondent to claim damages if permitted by Union or national law
Attorney’s fees for bad faith litigation positions
Silent on attorney’s fees

Attorney’s fees in the EU governed by general litigation rules

Confidentiality during Litigation

Sealed filings
Protective order
Equivalent to sealed filings
Equivalent to protective order
Party representative access

Similar scope but Directive always allows a party representative access to opposing party trade-secret documents

Statute of Limitations

Three years from date victim knew or should have known of misappropriation
No more than six years; Member States determine “in a clear and unambiguous manner,” when the period begins and under what circumstances it may be interrupted or suspended

Directive may provide longer absolute period but DTSA provides flexibility with “reasonable discovery” element

Employee Mobility

Prohibits injunctions that prevent a person from entering into an employment relationship
Prohibits injunctions that otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business
Permits injunctions placing conditions on employment when based on evidence of threatened misappropriation and not merely on information the person knows
Directive provides that it shall not be understood to offer any ground for restricting the mobility of employees, including neither limiting “employees’ use of the experience and skills honestly acquired in the normal course of their employment” nor “imposing any additional restrictions on employees in their employment contracts other than in accordance with Union or national law”
Directive articulates other considerations concerning rights of employees, as discussed in Lawful Conduct and Remedies sections above

Both regimes are attentive to employee rights

Whistleblower Protections

Immunity for employees, contractors, and consultants from liability under Federal and State civil and criminal trade secret law for confidential disclosures made to the government for the sole purpose of reporting a suspected legal violation
Disclosures made in claims for retaliation must be filed under seal and not disclosed further absent court order
Employers shall provide notice of the immunity to employees, contractors, and consultants in confidentiality agreements entered into or amended after May 11, 2016
Immunity for “revealing misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest,” or in good faith, believing that one’s conduct has revealed misconduct, wrongdoing, or illegal activity in furtherance of the public interest
Immunity for “exercising the right to freedom of expression and information as set out in the Charter, including respect for the freedom and pluralism of the media”

Directive provides broader protections for whistleblowers

Jurisdiction over Extraterritorial Conduct

Applies to conduct occurring outside the U.S. if the misappropriator is a U.S. citizen or entity or “an act in furtherance of the offense” was committed in the U.S.
Silent on extraterritorial conduct

DTSA arguably provides courts with broad jurisdiction over violations

Member States likely can provide for broader jurisdictional reach by their national courts

Criminal Liability and Penalties

Potential criminal liability for wrongful acquisition, use, or disclosure under Economic Espionage Act (into which the DTSA was incorporated)
Remedies include fines; forfeiture of property constituting or derived from the violation and proceeds thereof; destruction of that property; restitution to the victim; and jail time
Greater penalties if misappropriation constitutes “espionage,” i.e., the violation benefits a foreign government, agent, or instrumentality
No criminal liability in the Directive

Member States may supplement Directive with national-level criminal provisions in line with the protections afforded by the Directive

While there is significant foundational overlap between the DTSA and Directive, each regime has unique provisions—for instance, the Directive’s emphasis on employee mobility and potentially broader standing versus the DTSA’s expanded remedies and potential criminal liability—and operates in the context of a larger system of litigation practices that a global company will have to consider when crafting its internal policies and directing litigation in those jurisdictions. Aggrieved companies who have standing to sue in the U.S. may be attracted to the DTSA’s ex parte seizure mechanism in certain cases and U.S. courts’ broader scope of discovery, as well as the potential availability of criminal prosecution. Those companies therefore may consider filing misappropriation claims in the U.S., at least initially, to avail themselves of those procedures. In each case, aggrieved companies should evaluate the requirements and available remedies for misappropriation in all potential jurisdictions to ensure that their intellectual property rights are protected and litigation strategy is optimized across international jurisdictions.

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