President Obama signed the Defend Trade Secrets Act into law on Wednesday, adding another layer of protection for companies’ trade secrets and garnering near-unanimous support in Congress. So what’s in this legislation that managed to bring the parties together, and more importantly, what does it mean for employers? Here are 5 key takeaways from the DTSA.
- Opening the Federal Courthouse Doors
Arguably the most important feature of the Defend Trade Secrets Act (DTSA) is that it creates a federal private cause of action for trade secret misappropriation. This allows employers to bring their claims in federal court without the need to establish diversity jurisdiction, and it should lead to more predictable, consistent results. Almost every state, including Texas, had already adopted some version of the Uniform Trade Secrets Act (UTSA) as state law, but differences in statutory language and state court interpretations have in some instances led to inconsistent results. Now, though, the DTSA provides uniform language for all 50 states.
- Seizing Trade Secrets Ex Parte
The DTSA provides for all the familiar trade secrets remedies, including injunctions to prevent further misappropriation, damages for actual loss and unjust enrichment, and punitive damages for willful and malicious violations. What’s unique about the DTSA is that it allows courts to order the civil seizure of property in “extraordinary circumstances” to prevent further dissemination trade secrets, even before the defendant has a chance to respond.
Employers should note that they cannot use injunctions under the DTSA as a kind of after-the-fact non-compete agreement. The DTSA allows for injunctions to prevent a person from using another’s trade secrets, but it does not allow injunctions to be used to prevent a person from entering into an employment relationship. Employers will still have to rely on state law for non-compete issues.
- Preserving State Law Trade Secrets Claims
While the DTSA creates a federal cause of action, it does not preempt state trade secrets laws. The state and federal bodies of law will exist side by side, so plaintiffs may now bring their claims under the UTSA, the DTSA, or both.
It’s worth noting that the DTSA is similar in some respects to the more familiar UTSA. For example, in addition to the similar remedies outlined above, a contractual nondisclosure agreement is not required for coverage under the DTSA.
- Whistleblower Immunity
The DTSA also provides immunity for persons disclosing trade secrets to a government entity in confidence for the purpose of reporting or investigating a suspected violation of law. Employers should be sure to notify employees and contractors of this immunity in any confidentiality agreements they ask employees to sign, because failure to give such notice eliminates the possibility of punitive or exemplary damages. This includes double damage awards and attorney fees, so it makes a big difference!
- Effective Now
The DTSA takes immediate effect. It applies to any misappropriation of a trade secret occurring on or after the date of enactment (May 11, 2016), and it contains a three-year statute of limitations. Notably, if an employee or former employee misappropriated your company’s trade secrets before the DTSA was enacted and continued to do so after enactment, then the DTSA applies and you can bring your claim in federal court.