On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (“DTSA”), which amends the Economic Espionage Act and establishes a new federal private right of action against trade secret misappropriation. Previously, private trade secret misappropriation claims were exclusively the province of state law.1
The DTSA creates a uniform federal standard for trade secret misappropriation, as has historically been afforded to trademark, copyright and patent infringement. The DTSA defines “trade secrets” to include all forms of financial and technical information that the owner protects using reasonable confidentiality measures and derives independent economic value from not being known by others to whom it has value. These may include customer lists, formulas, algorithms, software code, industrial techniques and manufacturing processes. The DTSA allows the owner of a trade secret related to a product or service intended for use in interstate commerce to bring a federal claim for misappropriation. Trade secret claims related to products or services intended only for intrastate use would remain in state court. By creating an added layer of protection for what is arguably one of the most important categories of intellectual property, the new legislation should facilitate protection and enforcement of trade secrets.
Additionally, the DTSA provides for narrow seizure authority to protect against further dissemination of an allegedly misappropriated trade secret. An aggrieved party now may, upon ex parte application, request that a court order seizure of any property necessary to prevent the propagation or dissemination of a trade secret. Seizure is available only in extraordinary circumstances where necessary to protect the trade secret from further misappropriation. Such an order may be granted only where “specific facts” justify the seizure and where it is shown that an injunction granted in favor of the aggrieved party would be insufficient to prevent the further dissemination of the trade secret because “the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order.” Furthermore, a party with an interest in the seized property may make a motion to have the trade secret encrypted to prevent further disclosure.
The DTSA also provides for additional monetary remedies for a victim of trade secret misappropriation, including exemplary damages and attorneys’ fees where the misappropriation is willful and malicious. Conversely, a defendant can recover attorneys’ fees if it can show that plaintiff’s misappropriation claim was made in bad faith.2
Finally, the DTSA provides for protection in limited circumstances against civil and criminal liability where a federal or state trade secret is disclosed in confidence to a federal, state or local government official or to an attorney, and where the disclosure is made in the process of reporting or investigating a violation of law. Additionally, where an employee files an anti-retaliation lawsuit against an employer for reporting such a suspected violation of law, the DTSA allows the employee to disclose the trade secret, free from civil and criminal liability, if the disclosure is made under seal and pursuant to court order.
The DTSA imposes a requirement on the employer to notify all employees and consultants of this immunity in any agreement governing the use of trade secrets or other confidential information. Failure to comply with this requirement eliminates the employer’s ability to recover exemplary damages or attorneys’ fees in any action against the employee or consultant. In light of this requirement, employers may wish to add appropriate language to their form employment agreements notifying their employees of the existence of this immunity. Notably, because the new law states that this requirement applies only to agreements executed after the statute’s effective date3, re-execution of past employment agreements is not necessary.