And people say Congress and the White House can’t agree on anything. Last week, by a vote of 410-2, the US House of Representatives passed the Defend Trade Secrets Act.  The Act will become law.  It has already been unanimously approved by the Senate and President Obama has indicated he will sign it.

The new law will do several important things.

  • First, it allows the owners of trade secrets to sue in federal courts, thought to be far more suited than state courts to the expedited relief necessary when confidential and proprietary business information has been misappropriated.
  • Second, a controversial portion of the Act provides for civil seizure of property “necessary” to prevent the dissemination or propagation of a trade secret – even (in extraordinary circumstances) before a hearing is held or the accused party has a chance to respond.
  • Third, the Act permits individuals to make certain disclosures of trade secret information in anti-retaliation lawsuits.
  • Fourth, the Act immunizes an individual from criminal or civil liability for disclosing trade secrets to government officials, attorneys, or in litigation, in specific circumstances.
  • Finally, the Act requires employers to provide notice of that immunity in “any contract or agreement” with an employee, contractor or consultant that governs the use of trade secret or other confidential information,” or by cross-referencing to a policy document that sets forth the employer’s reporting policy for a suspected violation of law.

The new law, however, does not preempt or replace existing state trade secrets law.  Most state legislatures have enacted some version of the Uniform Trade Secrets Act, and there are remedies available under the law of some states that are broader than those provided for in the new federal legislation.

For example, while the Defend Trade Secrets Act permits a court to enter an injunction to prevent any actual or threatened misappropriation, such an injunction cannot “prevent a person from entering into an employment relationship” or place conditions on such employment without “evidence of actual or threatened misappropriation.” In other words, a federal court cannot enter an order prohibiting a departing employee who has misappropriated trade secrets from actually going to work for a competitor of the employer whose trade secrets have been misappropriated. That relief is available under some state law in the right circumstances.

Employers should use the occasion of the new federal protections to review existing policies regarding the protection of confidential and proprietary business information, as well as existing whistleblower policies.