The Defend Trade Secrets Act and How it Differs from State Trade Secret Laws

The Defend Trade Secrets Act (DTSA) was enacted in 2016. The DTSA allows an owner of a trade secret to sue in federal court when seeking relief for trade secret misappropriation related to a product or service in interstate or foreign commerce, and does not preempt any state law. A goal of the DTSA is to “provide a single, national standard for trade secret misappropriation with clear rules and predictability for everyone involved.” S. Rep. No. 114-220, at 14 (2016). For the majority of the time, this goal is upheld. Aside from establishing a relation to a product or service in interstate or foreign commerce, state trade secret laws are typically almost identical to the DTSA. However, if states trade secret laws do differ from the DTSA, they are usually in regard to remedy.

State Trade Secret Laws’ Similarities to the DTSA

In federal district courts, a state’s own trade secret laws can be folded into the DTSA.

For example, at the pleading stage of a case in Illinois, the main inquiry for both the DTSA and Illinois Trade Secret Act (ITSA) is whether the plaintiff alleged enough facts to give notice that the relevant information is a trade secret. See Packaging Corp. of Am., Inc. v. Croner419 F.Supp.3d 1059, 1065 (ND Ill. 2020); see also Covenant Aviation Sec., LLC v. berry 15 F.Supp.3d 813, 818 (ND Ill. 2014) (“[C]ourts have found allegations to be adequate in instances where the information and the efforts to maintain its confidentiality are described in general terms.”) (collecting cases).

In another example, in New Jersey, “the analysis under DTSA folds into that of NJTSA.” Austar Int’l. Ltd. v. AustarPharma LLC425 F.Supp.3d 336, 355 (DNJ 2019); see NJ Stats. Ann. 56:15-2. The essential inquiry for a trade secret is the same: “whether the information derives economic value, the information is not readily ascertainable by other means, and the holder endeavors for it to remain confidential.’” Austar Int’l.425 F.Supp.3d at 355-56.

Differences in Remedies Between State Trade Secret Laws and the DTSA

However, state trade secret laws can be different than the DTSA, commonly in regards to remedy. For the DTSA, there are three categories of damages that the court may award:

  1. Actual Losses: The plaintiff’s lost profits from the misappropriation;
  2. Unjust Enrichment: The amount of unjust enrichment received by the defendant that is not duplicative of the plaintiff’s lost profits; or
  3. Reasonable Royalty: A reasonable royalty based off of the unauthorized disclosure or use of the trade secret. A reasonable royalty is an alternative to actual losses or unjust enrichment.

However, some state laws do not allow for the same remedies. For example, the District of New York “has determined that avoided cost damages are not available for the New York trade secret misappropriation claim . . . .” Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Grp., No. 15 CIV. 211 (LGS), 2020 WL 8079812, at *1 (SDNY Oct. 15, 2020) (citing EJ Brooks Co. v. Cambridge Sec. Seals, 31 NY3d 441 (2018)). Avoided costs, sometimes referred to as “head start” damages, can still be recovered under the DTSA because they are covered under actual losses.

Extraterritoriality can also impact damages. Federal courts use a two-step analysis to determine extraterritoriality. If the law of another state can apply, federal courts will likely apply the domicile state’s conflicts of law principles as step one. Since state trade secret laws are not the same across the country, this can impact how trade secret misappropriation and the corresponding damages are analyzed.

For example, the Northern District of Illinois has held the DTSA has extraterritorial reach, but the ITSA does not. See Motorola Sols., Inc. v. Hytera Commun. Corp. Ltd., 436 F. Supp. 3d 1150, 1168 (ND Ill. 2020) (determining that a party could not recover state trade secret damages from outside of the US because the ITSA does not have extraterritorial reach).

Therefore, trade secret owners should strongly consider using the DTSA and file trade secrets cases in federal court if the trade secret at issue is related to a product or service in interstate or foreign commerce. The DTSA gives the plaintiffs a few more “tools” than state law such as the ability to recover avoided cost damages, and it has extraterritorial reach.