Why it matters: The Defend Trade Secrets Act of 2016 (DTSA) was signed into law on May 11, 2016 and gives trade secret owners a federal cause of action for injunctive relief and monetary damages for the misappropriation of trade secrets, while also providing employee protections. In a rare bipartisan showing, the DTSA cleared the Senate via unanimous vote on April 4, 2016 and was nearly unanimously approved by the House (410-2) on April 27, 2016. An overview of the DTSA and what it means for you is provided here.

The DTSA—What it Does

The DTSA amended the Economic Espionage Act (EEA) found at 18 U.S.C. Chapter 90 (Protection of Trade Secrets) to provide federal jurisdiction for the misappropriation of trade secrets and to create a federal claim and standard for trade secret misappropriation. Prior to the DTSA, trade secret misappropriation was governed primarily by state-adopted variants of the Uniform Trade Secrets Act (UTSA) in 47 states and by common law in New York, Massachusetts, and North Carolina, where the UTSA was never adopted. The DTSA does not preempt these state laws, but rather provides an additional federal cause of action for trade secret misappropriation with remedies including injunctive relief or reasonable royalties for ongoing infringement, ex parte seizure, increased monetary awards, along with treble damages and attorneys’ fees for willful or malicious misappropriation. To balance the interests of employees, the DTSA expressly forbids injunctions preventing employment and protects individuals who divulge trade secrets while reporting violations of the law or in court filings made under seal.

Private civil actions/federal jurisdiction: The DTSA replaced 18 U.S.C. § 1836(b) of the EEA with a provision entitled “Private Civil Actions,” and the replacement section protects trade secrets relating to interstate and foreign commerce.

Under the new section, and in “extraordinary circumstances,” the court may issue an order for ex parte property seizure to prevent dissemination of a misappropriated trade secret. In addition, the DTSA authorizes any or all of the following remedies:

  • Injunctive relief available to prevent actual or threatened misappropriation. However, any conditions placed on employment must be “based on evidence of threatened misappropriation and not merely on the information the person knows” and are subject to state laws prohibiting restraints on “profession, trade, or business.” When injunctive relief would be inequitable, the court may instead impose a reasonable royalty.
  • Monetary awards equal to damages for both actual loss and unjust enrichment (if not properly compensated through actual loss) are provided for. Alternatively, the court may impose a reasonable royalty.
  • Exemplary damages of up to twice the monetary damages, if the misappropriation was willful or malicious are also available.
  • “Reasonable” attorney fees in the event of bad faith from either party or of willful and malicious misappropriation can also be recovered.

Employee protections: A provision to Section 1833 protects individuals from both criminal and civil liability under federal and state laws for disclosing a trade secret confidentially to a government official or the employee’s attorney, or in a sealed complaint or other court document in connection with anti-retaliation lawsuits or reporting or investigating a suspected violation of law. As drafted, the anti-retaliation immunity is specific to court proceedings and thus is not facially applicable to non-court proceedings such EEOC hearings or arbitration, where many employment disputes begin.

Additionally, employers that fail to provide notice of the above immunities are barred from collecting exemplary damages or attorney’s fees. The notice provision applies to all contracts and agreements entered into or updated after the May 11 enactment of the DTSA.

What it means for you: The DTSA provides an additional important tool to protect trade secret information in the digital age. Employers should consider the DTSA at both the beginning and end of any relationship concerning confidential information, and should reference the DTSA immunity requirements in all new, updated, or amended documents regarding intellectual property and confidentiality.

See here to read the text of Senate Bill 1890, entitled “Defend Trade Secrets Act of 2016.”