The DTSA permits federal civil actions to be brought for the misappropriation of trade secrets if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.
The Defend Trade Secrets Act of 2016 (DTSA), which was signed into law on May 11 by President Obama, represents a significant addition to the ways in which corporate entities can seek redress for the theft of their trade secrets. The DTSA supplements the previously codified federal criminal cause of action and state causes of action for trade secret misappropriation with a newly created federal civil cause of action that is available to any injured party. The DTSA further allows federal courts to order a seizure of property necessary to prevent the propagation or dissemination of a trade secret under certain circumstances. However, the DTSA also identifies certain requirements for trade secret owners to gain access to all of the newly created remedies. Highlights of the new provisions in the DTSA are set forth below.
Federal Cause of Action for Trade Secret Misappropriation
Prior to the enactment of the DTSA, aggrieved companies could only pursue causes of action for trade secret misappropriation under applicable state laws. Now, the DTSA permits federal civil actions to be brought for the misappropriation of trade secrets if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. Causes of action can only be brought based on misappropriations that take place on or after May 11, 2016. In addition, the DTSA states that a civil action cannot be commenced more than three years after the date on which the misappropriation is or reasonably should have been discovered.
Seizure of Trade Secret Information
In limited cases, a federal court can grant a petition to seize trade secret information to prevent its dissemination. Particularly, the petitioner must satisfy the following nonprocedural requirements:
- equitable relief or other types of court orders would be an inadequate remedy because the accused would evade, avoid or not comply with the order
- immediate and irreparable harm would occur
- the potential harm to the petitioner outweighs the harm to the accused and substantially outweighs the harm to any third party
- the petitioner is likely to succeed in showing that the information to be seized is a trade secret obtained by improper means by the accused
- the accused has actual possession of the trade secret and any property to be seized.
A complete list of the requirements for granting a seizure petition are set forth in the DTSA and should be discussed with an attorney.
Exceptions and Immunities
The DTSA also sets forth certain exceptions and immunities that permit the disclosure of trade secret information by third parties in certain circumstances. Particularly, no private right of action is created with respect to otherwise lawful activity conducted by local, state or U.S. governmental entities. In addition, whistleblower immunity is affirmatively provided if an individual discloses a trade secret to a federal, state or local governmental official or an attorney for the purpose of reporting a suspected violation or in a court filing under seal.
Injunctive and monetary damages are available as remedies for the trade secret owner. Injunctive relief may prevent any actual or threatened misappropriation, but it cannot prevent a person from entering into an employment relationship or conflict with an applicable state law prohibiting restraints on the practice of a lawful profession. Monetary damages may be awarded based on an actual loss, unjust enrichment or reasonable royalty basis. In addition, the court may award exemplary damages of up to two times the damages identified and attorneys’ fees if the misappropriation is willful and malicious. Attorneys’ fees may be awarded to the defendant if the misappropriation claim is made in bad faith.
Corporate Notice Requirement
In order to obtain all of the monetary damages identified above, employers must provide notice of the whistleblower immunity in any agreement that governs the use of trade secret or confidential information. This notice can be provided explicitly in such an agreement or implicitly by reference to a policy document describing the whistleblower immunity. Noncompliance with the notice requirement will result in an inability to recover exemplary damages or attorneys’ fees in an action against an employee who did not receive such notice. The notice requirement only applies to agreements entered into after May 11, 2016.
In response to the DTSA, we recommend that corporate entities update their policy manuals to include language mimicking the immunity provision of the DTSA so that the possibility of all available remedies can be retained in the event that a trade secret is misappropriated by an employee, consultant or contractor. Concurrent amendments to or additions of whistleblower provisions should be made in all form employment agreements, consulting agreements and contractor agreements to reference the policy manual.