We recently reported that the House and Senate overwhelmingly passed the Defend Trade Secrets Act (DTSA), which establishes the first federal civil claim for misappropriation of trade secrets. Today, President Obama signed the Act into law.
The new law expands employers’ options for protecting against trade secret theft. Once the province solely of various (and sometimes inconsistent) state laws regulating trade secrets, the federal law now provides another vehicle for pursuing civil remedies for trade secret theft, and empowers federal prosecutors to bring criminal charges for certain violations. The law is good news for companies seeking to protect their most valuable information. Not only does the DTSA provide a uniform federal scheme for the protection of trade secrets, but it offers litigants the ability to pursue claims in federal court, which may be better equipped to handle complex factual and jurisdictional issues.
Successful claimants can obtain injunctive relief under the DTSA as well as actual damages (or, if actual damages cannot be calculated, a reasonable royalty for the unlawful use or disclosure of the trade secret). Where a trade secret is willfully and maliciously misappropriated, the prevailing party may obtain exemplary damages (twice the party’s actual damages) and attorneys’ fees. While the law is likely to be invaluable to companies, it expressly provides that it cannot be used to obtain an injunction solely to prevent a person from entering into an employment relationship. Rather, it protects only against the actual or threatened misappropriation of a trade secret, and state law continues to govern restraints on the practice of a lawful profession, trade, or business.
The DTSA contains some controversial provisions, including empowering the court (even ex parte, in extraordinary circumstances) to issue an order for the seizure of property necessary to prevent the propagation or dissemination of the trade secret where other equitable relief is inadequate. The law also exempts from the definition of trade secret misappropriation the reporting of a suspected violation of law to any federal or state governmental entity with lawful authority with respect to the violation. In fact, the law requires that employers provide notice of this immunity in any contract or agreement with an employee, contractor, or consultant that governs the use of a trade secret or other confidential information; failure to provide such notice results in the company being unable to recover exempt damages or attorneys’ fees in an action against an employee to whom notice was not provided. The DTSA also protects an individual who claims to have been retaliated against for reporting a violation of the law who discloses the trade secret to his attorney or in court papers (with proper protections).
Employers are advised to consult with counsel in order to review and update their confidentiality and non-disclosure agreements to comply with the law’s requirements in order to take full advantage of the relief provided thereunder.