On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (DTSA). Unlike other forms of intellectual property, trade secrets issues have been addressed mainly through state law. The DTSA provides a new federal court civil remedy for acts of trade secret misappropriation, among other key provisions:

Ex Parte Seizure of Property

The most controversial aspect of the DTSA is the ex parte seizure provision, which permits a court to order the seizure of property if deemed necessary to prevent the propagation or dissemination of the trade secret. A party seeking an ex parte seizure will have to demonstrate that "extraordinary circumstances" exist warranting the seizure. The ex parte provision also allows a defendant to seek damages for abusive or wrongfully-acquired seizure orders.

Jurisdiction

The DTSA provides that the U.S. district courts have original jurisdiction over civil actions brought under the law. Such jurisdiction is not exclusive. To establish jurisdiction in federal court, a plaintiff will have to show that the trade secret is "related to a product or service used in, or intended for use in, interstate or foreign commerce."

Whistleblower/Retaliation Claim Immunity Protections

The DTSA contains a whistleblower provision which provides that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made (a) "in confidence" to a federal, state or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law, or (b) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

Notice Requirement

The new immunity provision of the law requires employers to provide notice of the immunity provision in "any contract or agreement with an employee that contains provisions governing the use of a trade secret or other confidential information." This notice provision applies to all contracts entered into or amended after May 11, 2016 (the date of the enactment of the DTSA).

For purposes of the DTSA's immunity and notice provisions, the DTSA defines "employee" broadly to include any individual performing work as a contractor or consultant for an employer.

International Trade Secret Theft

The DTSA includes provisions designed to address international trade secret theft. The private right of action created by the DTSA applies to trade secrets that are related to a product or service used in, or intended for use in, "interstate or foreign commerce." The DTSA recognizes that trade secret theft occurs in the United States "and around the world." The ex parte seizure provision is designed in part to be used "in instances in which a defendant is seeking to flee the country." Moreover, the DTSA requires the U.S. Attorney General to make a biannual report to the House and Senate Judiciary Committees on international trade secret theft affecting U.S. companies.

Recommended Action

Companies should act promptly to protect their trade secrets, take advantage of the new protections provided in the law, and avoid potential pitfalls. Things to consider include the following:

  • Identify the confidential information of the company that qualifies for trade secret protection under the DTSA or other applicable state law.
  • Review existing company contracts with employees, independent contractors and consultants that contain provisions governing the use of trade secrets or other confidential information, and evaluate the need for:
    • "notice" language regarding the DTSA whistleblower and retaliation protections because, while the notice requirement applies only to contracts that are entered into or updated after the effective date of the DTSA, in an abundance of caution companies may want to modify existing contracts to include the language, given the consequences for failure to provide the notice; and
    • a cross-reference to a policy document provided to the employee that sets forth the employer's reporting policy for a suspected violation of law, as the DTSA provides that an employer will be deemed to be in compliance with the notice requirement if the employer provides such a cross-reference.
  • Review employee termination procedures, return-of-property requirements and security protocols pertaining to paper files and electronically stored information to ensure that the company is adequately protecting its trade secrets.