On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA)* into law, effective immediately. The DTSA provides, for the first time, a federal civil cause of action for the misappropriation of trade secrets. Prior to the DTSA, trade secrets were protected only at the state level, with most states (other than Massachusetts and New York) adopting their own version of the Uniform Trade Secrets Act. Ohio, for example, still maintains its own trade secrets act under O.R.C. § 1333.61, et. seq. (OUTSA).
What Does the DTSA Provide?
Companies that are victims of trade secret theft now have an alternative to state law, and thus, state courts in which trade secret claims are filed. Many employers prefer federal courts for intellectual property litigation given the complexity of understanding intertwined disputes containing non-compete, non-disclosure, and trade secrets claims. This is even more evident today as many state courts have moved away from focused business litigation dockets where the judges have substantive experience dealing with such employment disputes. Prior to the DTSA, trade secrets – such as customer lists, formulas and manufacturing processes – were the only form of U.S. intellectual property lacking protection under federal civil law.
State Law Not Preempted
The DTSA is intended to supplement, not preempt, state laws. Thus, employers will still have the OUTSA as an alternative avenue to address trade secret theft. Employers should carefully consult with their legal counsel to discuss the differences between the DTSA and the OUTSA in crafting and/or amending their employment and non-compete agreements and pursing trade secret claims. For example, one of many important distinctions is that the DTSA provisions regarding injunctive relief specifically reject the "inevitable disclosure doctrine" as a basis for obtaining an injunction. The doctrine, recognized under the OUTSA, would otherwise allow employers to enjoin former employees from working for a competitor based on the rationale that the employee would inevitably utilize his or her personal knowledge of an employer’s trade secrets given the similarity of their new position.
Critical New Remedy and Whistleblower Protections
The DTSA provides a number of traditional remedies as found under the OUTSA, including a potential award for actual loss, damages, injunctive relief, attorneys’ fees, and exemplary damages for willful or malicious misappropriation. A key difference, however, is that the DTSA contains an “ex-parte seizure” provision. This provision provides a means for the plaintiff to seek a court order for the immediate seizure of property “necessary to prevent the propagation or dissemination of the trade secrets.” The request for such an order can be brought without providing any notice to the adverse party.
The DTSA also provides new whistleblower protection from prosecution to employees, independent contractors, and consultants who disclose trade secrets if the disclosure was made to report or investigate an alleged violation of law. The DTSA mandates that employers include notice of such immunity in any agreement with an employee, contractor, or consultant that governs the use of trade secret or confidential information. If the employer fails to provide that notice in its agreements, it will be barred from seeking the recovery of exemplary damages or attorneys’ fees from the employee if the employer were to sue the employee under the DTSA.
What Should Employers Do?
Business owners should view the new law as an opportunity to evaluate their trade secret protection strategies and consider additional protocols, including:
- Immediately updating all non-compete, non-disclosure, and other employment agreements to include the specific notice of the DTSA’s immunity provisions
- Review policies, agreements, and handbooks to otherwise ensure that they are all consistent in defining the company’s trade secrets, confidential and propriety information, and the measures used to safeguard such information
- Consult with legal counsel to coordinate updated training for human resource and executive staff, and promote the culture of importance in protecting the company’s valuable information
The DTSA is a significant step in attempting to provide uniformity in trade secret litigation. As the courts will likely grapple with defining issues under the act in the near future, employers should engage in proactive efforts to understand the law and protect their trade secrets.