Defend Trade Secrets Act (DTSA) Becomes Law

BEVERLY A. BERNEMAN

Partner


Defend Trade Secrets Act (DTSA) Becomes Law

On May 11, 2016, President Obama signed the Defend Trade Secrets Act (“DTSA”) into law. The DTSA marks long-awaited federal recognition of trade secrets as valuable Intellectual Property. Here’s a summary of what you should know about it.

Trade Secrets Background

A trade secret is information that can be used in the operation of a business and is sufficiently valuable to give the business a competitive advantage. The business must take reasonable measures to keep the trade secret from being disclosed to the public.

Since the 1990s, many attorneys began to lobby Congress for the passage of a federal trade secret law. The product of their hard work is the DTSA.

A Tour of the DTSA

Employment Law Issues:

The DTSA includes provisions that address the employer/employee relationship. The law provides criminal and civil immunity for individuals who disclose trade secrets to government officials or attorneys for the purposes “of reporting or investigating a suspected violation of law.”

Employers must provide notice of this immunity in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. Compliance only requires a cross-reference to policy documents provided to the employee that sets forth the employer’s reporting policy for suspected violation of law.

One of the biggest changes is the limit on injunctive relief against employees if an injunction would prevent a person from entering into an employment relationship. A court may place restrictions on employment only if the former employer can show, through evidence, that the new employment “threatened misappropriation and not merely on the information the person knows.” At this time, there’s no indication whether an employer may use state trade secret law to avoid the effect of the DTSA on this point. However, state laws governing restrictive covenants are expressly preserved and still available.

Civil Litigation:

A plaintiff will now be able to seek remedies for trade secret misappropriation in federal court. All state law causes of action, including actions based upon a state’s trade secret law, are preserved.

A plaintiff may also seek a seizure order without notice in extraordinary circumstances. The party must show that the seizure is necessary to prevent the propagation or dissemination of a trade secret. This will give a plaintiff a valuable tool to stop the misappropriation of trade secrets on an expedited basis. However, the statute does not give much guidance as to what would constitute the “propagation” or “dissemination” of a trade secret.

A plaintiff may seek exemplary damages of two times the amount of damages and attorneys’ fees in cases of willful and malicious misappropriation.

Criminal Prosecution:

The DTSA also amended criminal procedure under the Economic Espionage Act. The penalties for violating the act are the greater of $5 million or three times the value of the stolen trade secret.

The criminal court may hear from the owner of the misappropriated trade secret regarding the need to protect their trade secrets. Theft of trade secrets is now a predicate act for criminal actions under Racketeering Influenced and Corrupt Organizations Act (RICO).

Conclusion

The DTSA ushers a new area into the protection of trade secrets. As a result, every business should reexamine its trade secrets inventory, measures of secrecy and employment documents.

This newsletter has been provided by Golan & Christie LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act without seeking professional advice. This newsletter may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome. Effective June 21, 2005, Internal Revenue Service regulations require that certain types of written advice include a disclaimer. To the extent the newsletter contains written advice relating to a federal tax issue, the written advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer, for the purposes of avoiding federal tax penalties, and was not written to support the promotion or marketing of the transaction or matters discussed herein.