The Defend Trade Secrets Act (DTSA) was a breath of fresh air for many companies that rely on trade secrets as part of their business model. Under the DTSA, a business’s or individual’s trade secrets—such as copyrights, patents and trademarks—are federally protected. This federal protection allows a business to file a private civil lawsuit if a trade secret which is related to a product or service used in, or intended for use in, interstate or foreign commerce is misappropriated.
Prior to the DTSA, trade secrets law was a state issue, and most states adopted some version of the Uniform Trade Secrets Act (UTSA) to protect their local businesses. However, the interpretation of these laws varied greatly from state to state.
The DTSA adopts many provisions from the UTSA such as injunctive relief to prevent actual or threatened misappropriation; actual damages; and exemplary damages and attorneys’ fees for willful and malicious misappropriate.
However, unlike the UTSA, the DSTA also:
- Provides businesses access to federal courts, regardless of the amount in controversy;
- Permits ex parte seizures where injunctive relief is clearly shown to be inadequate;
- Grants whistleblowers who disclose trade secrets to the government immunity from civil and criminal liability in certain situations; and
- Mandates that notice about whistleblower immunity be included in any new or updated employment agreement that governs the use of a trade secret or other confidential information.
To be protected by the DTSA, businesses or individuals must demonstrate they have taken steps to keep their trade secrets private.
Here are three essential steps companies must take to ensure trade secret protection under the DTSA:
- Audit and Identify Trade Secrets The first step to ensuring that your business’s trade secrets will be protected by the DTSA is to carefully audit corporate assets to identify the trade secrets you have. A trade secret, as defined by the UTSA, is business or scientific information that a) derives independent economic value from not being generally known to or readily accessible by the public through proper means and 2) the owner has taken reasonable measures to keep secret. A trade secret’s value stems from not being readily known or accessible by the public. After you have identified all trade secrets, you must then determine who should have access to that confidential information. This could include any employees, business partners, and third parties that have access to property grounds, business data or networks.
- Protect Trade Secrets Take proper precautions to adequately protect your trade secrets. A client list could be considered a trade secret, but only if it cannot be replicated through publicly available resources and if it is kept confidential. In contrast, if the business did not take reasonable measures to keep the client list confidential—such as keeping it on a public website—the trade secret would not be protected by the DTSA. Therefore, to ensure they are protected, reasonable measures must be taken to keep all trade secrets private, such as keeping all tangible trade secrets under lock-and-key, and any electronically accessible trade secrets encrypted and/or password protected.
- Revise Agreements and Policies It’s important to note that the DTSA does offer immunity to individuals under very specific guidelines. For example, a trade secret may be disclosed for the purpose of reporting or investigating a suspected violation of the law to a government official or attorney. As such, a DTSA provision—which provides notice of those immunities—must be included, or cross-referenced, in all contracts and agreements which govern the use of trade secret or other confidential information entered into after May 11, 2016, to ensure protection under the DTSA.Employee agreements and internal policies must also be revisited and revised. Businesses should review any confidentiality agreements they have with their employees, as well as their corporate security and electronic use policies. For example, failing to list prohibited websites or software downloads in an electronic use policy could make the company— and its trade secrets— susceptible to a security breach.The final step to ensuring business’s trade secrets will be protected by the DTSA is to modify all employee and third party privacy-related agreements. Many companies allow third parties to access property grounds, data, networks, etc. As such, businesses must revisit vendor agreements to make certain that trade secrets are identified to ensure protection under DTSA should a vendor misappropriate them.Documents that should be revised to include the DTSA provision include:
- Employment agreements
- Independent contractor agreements
- Consulting agreements
- Separation and/or severance agreements
- Release of claims agreements
- Non-compete agreements
- Confidentiality agreements
While the DTSA provides an essential layer of federal protection for trade secrets, businesses must first do their due diligence in order to be protected by this law.
If a business fails to modify these agreements and notify its employees or independent contractors of the DTSA’s immunity, the business will not be eligible for exemplary damages or attorneys’ fees in an action against a party that did not receive notice. However, those remedies may still be available under the UTSA if the employer also asserts a claim under that statute in addition to the DTSA.