The New Defend Trade Secrets Act: What Employers Should Do Now
Apr 10, 2016
Last month, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA), which Congress passed on April 27, 2016. The DTSA creates for the first time a powerful federal cause of action for trade secret misappropriation whereby aggrieved companies may now seek injunctive relief and monetary remedies arising from a party’s willful and malicious misappropriation of trade secrets.
A “trade secret,” as the phrase implies, is a form of intellectual property that is not generally known or readily ascertainable through appropriate means by other persons. Trade secrets provide businesses competitive advantages due to reasonable measures taken to keep them confidential. Common business trade secrets include, for example, customer lists, contract details, business plans and strategies, formulas, methods, processes, procedures and techniques.
The goal of the DTSA is to create protections and a uniform body of federal law for trade secrets such as those afforded to patents, copyrights and trademarks. While the DTSA does not preempt state trade secret laws, including the Uniform Trade Secrets Act (which Connecticut has adopted), it does provide an option to proceed in federal court not otherwise available in many cases brought under state laws. Most importantly, it adds another tool for the protection of intellectual property rights, which are often the most important assets of a business.
Employers should take note of one of the biggest immediate impacts, namely, a requirement to notify their employees and independent contractors of new whistleblower immunity provisions “in any contract or agreement with an employee [or independent contractor] that governs the use of a trade secret or other confidential information.” An employer’s failure to provide such notice will result in a forfeiture of the full range of remedies the DTSA offers (e.g., enhanced damages and legal fees). Employers should take steps now to incorporate the whistleblower immunity notice into their employment, consulting and contractor agreements and policies, or implement a new reporting policy setting forth the immunity notice and cross-referencing any preexisting agreement or policy affected.
In addition to the whistleblower immunity notice, the following key provisions of the DTSA are important for employers seeking enhanced trade secret protection:
Applies to any misappropriation of a trade secret on or after the date of enactment of the Act.
Enacts three year statute of limitations from discovery of the misappropriation or from the time it should have been discovered by the exercise of reasonable diligence.
Creates an ex parte (without notice) civil seizure procedure for use in extraordinary circumstances with respect to “property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”
Seizure may be carried out immediately without notice to the defendant upon proof of “immediate and irreparable injury”, with a provision for a fast track hearing date within seven days, and a bonding requirement to secure the defendant against losses.
Injunctive relief is available to prevent any actual or threatened misappropriation on such terms as the court deems reasonable, provided that the order does not –
Prevent a person from entering into an employment relationship; or
Otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade or business;
The above protection on employment relationships requires any conditions placed on employment be based on actual evidence of threatened misappropriation and not merely on what the person knows, i.e., on potential of departed employee’s knowledge and “inevitable disclosure” of that knowledge in a new job position.
Damages and Attorney’s Fees:
Damages are available for actual losses caused by the misappropriation or for unjust enrichment that is not addressed by computing damages for actual losses; or, in lieu of damages measured by any other method, a reasonable royalty for the unauthorized disclosure or use of the trade secret.
If a trade secret is willfully and maliciously misappropriated, enhanced punitive damages of two-times those basic awards are available.
Attorney’s fees may be awarded to a prevailing party where a claim for misappropriation is made in bad faith, a motion for injunctive relief is opposed in bad faith, or the trade secret was “willfully and maliciously misappropriated.”
New whistleblower provision granting immunity from civil and criminal liability under any federal or state trade secret law for disclosure of a trade secret that is made:
In confidence to a Federal, State, or local government official and solely for the purposes of reporting or investigating a suspected violation of the law; or
In a complaint or other document filed under seal in a lawsuit.
Trade secrets may also be disclosed to the attorney of an individual who files a lawsuit based on employer retaliation for reporting a suspected violation of law if the individual files any document containing the trade secret under seal.
Importantly, for all contracts and agreements with employees, contractors, and consultants entered into or modified after the enactment of the DTSA, employers must provide notice of the DTSA’s whistleblower immunity provisions.
Failure to include such notice bars the employer from recovering enhanced damages and legal fees otherwise available under the DTSA in an action against an employee to whom notice was not provided.
For more information, including assistance with revisions to employer policies, please contact the following: Matthew Wagner, Chair of our Intellectual Property Department, at MWagner@dmoc.com, or 203-358-0800 and Scott Centrella, Chair of our Employment Practices Department, at SCentrella@dmoc.com, or 203-358-0800.