Logistics companies and motor carriers often require key employees to sign confidentiality and non-compete agreements in order to protect the company’s trade secrets. Protection of trade secrets is essential to the operation of a company and can give one entity a competitive edge over others. Trade secrets can be nearly anything, such as a business method or proprietary process, so long as the trade secret derives independent economic value from not being generally known to or readily discoverable by proper means by other persons, and that the trade secret owner uses reasonable efforts to maintain the information’s secrecy.
Although protection of trade secrets is critical, companies often must make use of a patchwork of state laws that may or may not provide the same level of protection. Remedies vary from state to state, with some allowing for enhanced damages or attorneys’ fees and others not. Companies may be uncertain whether their trade secrets will be protected in one state or another.
Now, however, there is the federal Defend Trade Secrets Act (“DTSA”), passed as an amendment to the Economic Espionage Act (“EEA”), 18 U.S.C. §§ 1831, et seq., which became effective on May 11, 2016. The DTSA created a federal civil cause of action for trade secret misappropriation, although it does not preempt any state trade secrets acts.
There is little interpretation of the DTSA, and much of its language mirrors that of state trade secrets act. The DTSA allows a trade secret owner to collect actual damages and, if the misappropriation is willful and malicious, a court may award exemplary damages of no more than two times the actual damages awarded, as well as attorneys’ fees. The DTSA includes a seizure provision, which allows the court to take control of the alleged trade secret materials; The standard of proof for this provision, however, is very high and may be very difficult for a trade secret owner to meet. The DTSA also includes a whistleblower exemption. This exemption provides that whistleblowers who disclose trade secrets in order to report a possible violation of law are protected from criminal or civil liability. 18 U.S.C. § 1833(b)(1). The DTSA requires employers provide notice of the DTSA’s whistleblower protections to any employees, contractors, or consultants, and this provision should appear in any agreement that governs the use of trade secret or confidential information. If the employer fails to provide notice of the whistleblower protections, then the employer cannot recover either exemplary damages or attorneys’ fees under the DTSA. 18 U.S.C. § 1833(b)(3).
Protecting trade secrets and confidential information is often a critical part of any employment arrangement. The federal DTSA offers trade secret owners another way in which to enforce the provisions of these agreements in addition to relying on the various state trade secrets acts. Moreover, assertion of this federal cause of action could allow a company to sue in federal court rather than in state court, which may be beneficial. Those in the trucking or brokerage industry should consider adding the DTSA whistleblower language to future confidentiality agreements. The DTSA is still a new law, and we will have to wait and see how courts will interpret its provisions.