With President Barack Obama expected to sign the Defend Trade Secrets Act ("DTSA") in the near future, the DTSA is about to become law. Under the DTSA, trade secrets owners will, for the first time, have the right to file suit in federal court for misappropriation of trade secrets, as well as pursue other new remedies. Currently, trade secrets protection is a matter of state law with all states, except New York and Massachusetts, having adopted some version of the Uniform Trade Secrets Act ("UTSA"). The DTSA will not preempt state law, but is intended to provide a unified legal framework to protect trade secrets from misappropriation by employees, as well as foreign actors.
While many of the provisions of the DTSA are identical to those under the UTSA, the Act includes several unique aspects. First, once the DTSA is enacted, an owner of a misappropriated trade secret will have the right to bring a civil action in federal court if the trade secret "is related to a product or service used in, or intended for use in, interstate or foreign commerce." Additionally, the trade secret owner will be able to apply for an ex parte seizure order that would allow the government to seize misappropriated trade secrets without giving any notice of the lawsuit to the defendant. Because seizure is an extraordinary remedy, certain stringent requirements are imposed on the party seeking the ex parte seizure order, including showing that immediate and irreparable injury will occur if the seizure is not ordered and that the harm to the applicant outweighs the legitimate interests of any party from whom the material is to be seized. The application for seizure must describe with reasonable particularity the matter to be seized and its location. Because of the drastic nature of this remedy, the applicant must post security and can be held liable for damages caused by a wrongful seizure.
In addition to the ex parte seizure order, the trade secret owner may be entitled to an injunction to prevent a person from entering into an employment relationship or to have conditions placed on such employment based on evidence of threatened misappropriation. Under the DTSA, damages for actual loss caused by the misappropriation or for any unjust enrichment may be recovered. In addition, a court can award exemplary damages in an amount not more than two times the amount of the damages if the trade secret is willfully and maliciously misappropriated.
One of the more overlooked provisions of the DTSA relates to potential whistleblowers. Any individual who discloses a trade secret to a government official or attorney solely for the purpose of reporting or investigating a suspected violation of law is granted immunity from being held civilly or criminally liable under any federal or state trade secret law. In addition, the DTSA provides that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to his or her attorney and use the trade secret information in the court proceeding, provided that certain steps are taken to protect the confidentiality of the trade secret.
Employers should be aware that the DTSA directs employers to provide notice of the immunity protections of the DTSA to employees "in any contract or agreement with an employee that governs the use of trade secret or other confidential information." For purposes of the DTSA, "employee" includes any individual performing work as a contractor or consultant for an employer. An employer will be considered in compliance with this notice provision if the employer includes such notice in a policy document and provides a cross-reference to such policy document. The consequence of not providing the required notice is that the employer will not be able to recover exemplary damages or attorneys' fees under the DTSA in any action against an employee to whom notice was not provided. Companies should be prepared to update their confidentiality and non-disclosure policies and agreements to include the required notice regarding immunity under the DTSA.