On May 11, 2016, a new federal trade secrets act (the Defend Trade Secrets Act, or the Act) was passed that expands the toolbox for trade secret protection and also necessitates changes to agreements and policies with contractors, consultants and employees. It applies to any misappropriation of a trade secret for which any act occurs on or after the date of the enactment of the Act (i.e., May 11, 2016). This alert will explain the key points of the new law and two things that may require immediate attention. The firm will be publishing blog posts on the finer points of the Act and presenting a webinar in the coming weeks. In the meantime, if you have specific questions about the Act and its implications, please contact a member of BakerHostetler's Noncompete and Trade Secrets team.
Key points of the Act:
- The Act provides a federal civil remedy for misappropriation of trade secrets. There is no amount in controversy threshold.
- The Act allows ex parte seizure in “extraordinary circumstances,” which are undefined. These are carried out by federal law enforcement officials under strict parameters, which must be contained in the seizure order, and without the physical presence of the applicant or of state or local authorities unless allowed by the seizure order.
- The Act preserves state laws restricting restraints on employment by expressly stating that an injunction under the Act cannot conflict with applicable state laws prohibiting restraints on the practice of a lawful trade, profession or business.
- The Act contains whistleblower protections for reporting trade secret misappropriation. However, if an employer does not provide notice of the immunity provisions in its written policies, it may not be awarded exemplary damages or attorney fees for willful misappropriation.
Revisions of client agreements, contracts and employment policies
The whistleblower provision of the Act provides immunity for disclosure of a trade secret made in confidence to a federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law. Immunity is also provided for disclosure of a trade secret in a complaint or other document filed in a lawsuit or other proceeding if such filing is made under seal.
Employers need to give notice of the immunity provisions “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The term “employee” is defined as including “any individual performing work as a contractor or consultant for an employer.” The Act states that “this paragraph,” which presumably refers to the notice provision but is not entirely clear, “shall apply to contracts and agreements that are entered into or updated after the enactment of this subsection.” Employers should update their policies as soon as practicable, as there is a risk that the employer will not be able to recover exemplary damages and attorney fees in a misappropriation action against an employee who has not received notice of the immunity provision.