On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law, thereby creating a new federal civil cause of action for trade secret misappropriation. Before the DTSA, trade secret misappropriation claims were asserted under state laws that largely follow the Uniform Trade Secrets Act (“UTSA”). The DTSA does not displace those state laws, but creates new obligations and federal remedies for businesses seeking to protect their trade secrets.
More Arrows in the Quiver for Employers and Other Trade Secret Owners…
By providing the option to bring trade secret misappropriation claims in federal court, the DTSA gives employers and other trade secret owners immediate access to a federal court, broad federal discovery (e.g., nationwide subpoena power), the availability of an array of federal remedies, and the opportunity for federal enforcement of judgments.
One potentially significant remedy under the DTSA, which is typically not available under state trade secret misappropriation laws, is the ex parteseizure remedy. A federal judge may order the seizure of property by law enforcement officials, without advance notice to the property owner, when necessary “to prevent the propagation or dissemination of the trade secret.” To obtain this extraordinary remedy, the trade secret owner must satisfy a long list of requirements, including establishing that a preliminary injunction or temporary restraining order would be inadequate to prevent the propagation or dissemination of the trade secret and that if notice were provided, the defendant would destroy, move, or hide the property to be seized. While ex parte seizure orders are a powerful new weapon in the fight against misappropriation of trade secrets, caution should be exercised in seeking such an order because if a court later determines that a seizure or attempted seizure was wrongful or excessive, compensatory damages, punitive damages, and attorney’s fees can be awarded against the party seeking the seizure.
The DTSA also reflects a policy favoring submissions under seal – e.g., by requiring any disclosure of the trade secret by the defendant to be made under seal and by prohibiting the court from directing the disclosure of any alleged trade secret unless the trade secret owner is first permitted to challenge (under seal) the potential disclosure. Under the DTSA, trade secret owners can also move to have any material seized be protected by encryption.
Finally, like the UTSA, the DTSA allows trade secret owners to seek and obtain injunctive relief and compensatory damages. In addition, in the event of willful and malicious misappropriation of trade secrets, punitive damages (up to two times compensatory damages) and reasonable attorney’s fees can be awarded.
The DTSA also provides new protections for whistleblowers. Specifically, the new law provides immunity to whistleblowers from civil and criminal liability for making limited disclosures of trade secrets in confidence to government officials, or to an attorney, for the purpose of reporting or investigating a suspected violation of law. This immunity does not permit an individual to disclose trade secrets publicly.
The whistleblower may use the trade secret in court proceedings so long as any filing containing the trade secret is made under seal and the individual does not disclose the trade secret absent court order. In the case of an employee lawsuit alleging employer retaliation for reporting a suspected violation of law, the employee may also disclose the trade secret to his/her attorney and use the trade secret in the court proceeding under seal pursuant to court order.
What Employers Should Do Now
While the DTSA provides additional rights and remedies to trade secret owners, it also imposes new obligations on employers who wish to take advantage of the statute’s full range of remedies. The statute requires employers to provide notice of the above-described whistleblower immunities in any contract or agreement with an employee, contractor, or consultant, entered into or updated after May 11, 2016, that addresses the use of trade secrets or “other confidential information.” Employers who do not provide the requisite notice will not be eligible to recover punitive damages and attorneys’ fees that would otherwise have been available under the DTSA.
All employers should review and revise their template agreements pertaining to trade secrets or confidential information, including employment agreements, consulting agreements, contractor engagement agreements, non-disclosure agreements, severance and separation agreements, and invention assignment agreements – to comply with the whistleblower immunity notification requirement. Employers also should identify existing contracts that will be renewed or updated to ensure that they will also incorporate the whistleblower immunity notice provisions.