New Federal Defend Trade Secrets Act (“DTSA”) Necessitates Employers Change Trade Secrets Agreements

By

A company’s trade secrets are valuable business assets and protecting such trade secrets should be important to every company.  The recent passage of the Defend Trade Secrets Act (“DTSA”) now creates a federal civil right of action for trade secrets misappropriation.

A trade secret is generally defined as “information that derives economic value from being secret and is the subject of reasonable efforts to maintain its secrecy.”  The DTSA more broadly defines trade secret and permits the owner of a trade secret to bring a claim in federal court for the actual or threatened wrongful acquisition, use, and/or disclosure of a trade secret.  The Act permits an award of actual damages, disgorgement of unjust gains, a reasonable royalty, and injunctive relief subject to certain limitations.  In cases of willful and malicious misappropriation, or where claims are made or resisted in bad faith, exemplary damages of up to twice the actual damages and an award of attorney’s fees may be available.

New “Immunity” Provision Necessitates that Employers Give Immunity Notice

The DTSA includes a whistleblower provision that provides immunity for an employee (broadly defined to include contractors and consultants) from criminal or civil liability under any federal or state trade secret law for disclosing trade secrets in confidence to government officials solely for purposes of reporting or investigating a suspected violation of law, or in complaints and filings in anti-retaliation lawsuits relating to such disclosures.  To qualify for the immunity, employees must file documents containing trade secrets under seal and not make further disclosures of the secrets absent court order.

The new law provides for an employer to provide notice of the immunity in any contract or agreement with an employee entered into or amended after May 11, 2016 governing the use of a trade secret or other confidential information.  Alternatively, an employer can cross-reference to policy documents given to an employee setting forth the employer’s reporting policy for a suspected violation of law.  An employer failing to comply with the notice requirement may not be awarded exemplary damages or attorney’s fees in an action under the DTSA against an employee to whom notice was not provided.  Consequently, companies should revise agreements used to protect confidential information such as employment agreements, confidentiality and nondisclosure agreements, and separation agreements as well as include the immunity notice in employee handbooks and other policies governing the use of trade secret or confidential information.

Injunctive Relief Provisions of the DTSA

Courts enforcing the DTSA have broad authority to grant injunctive relief, provided the order does not otherwise conflict with applicable state law prohibiting restraints on the practice of a lawful profession, trade, or business. The DTSA does not preempt existing state law remedies and practitioners must address whether the trade secret information at issue is sufficiently connected to interstate commerce to qualify for protection under the DTSA.  In some situations, an aggrieved party may not have standing to sue under the DTSA or state law may offer dispute-specific advantages.  Attorneys will want to consider and advise their clients on the most advantageous law to pursue.

DTSA allows Ex Parte Court-Ordered Seizures Under Exceptional Circumstances

The DTSA includes provisions under which a Court can issue an order, without prior notice to the adverse party, instructing the government to seize materials that may constitute or contain protected trade secrets.  To prevent abuse, DTSA includes procedural safeguards to balance the need to prevent or remedy misappropriation with the need to avoid interrupting the legitimate interest(s) of an accused party, as well as the business of third parties.  Those procedural safeguards, along with a seven-day post-seizure hearing requirement where the claimant bears the burden of proof, are intended to provide significant relief to a party exposed to a wrongful seizure order. If a seizure is ordered, federal law enforcement personnel may conduct an unannounced search at a facility or office location to secure physical and/or electronic information “necessary to prevent propagation or dissemination of the trade secret that is the subject of the action.”  Businesses are encouraged to consult legal counsel to develop internal and external response plans for properly addressing the receipt of a seizure order.

Businesses are encouraged to review their existing practices in protecting trade secrets and  consult with legal counsel to modify existing agreements and policies.

 

 

THESE MATERIALS ARE INTENDED TO PROVIDE AN OVERVIEW OF EMPLOYMENT ISSUES IN THE WORKPLACE AND ARE NOT INTENDED TO GIVE LEGAL ADVICE.  IF YOU HAVE QUESTIONS OR COMMENTS REGARDING EMPLOYMENT LAW ISSUES, PLEASE CONTACT STACEY DEKALB AT THE LOMMEN ABDO EMPLOYMENT LAW DEPARTMENT AT 612.336.9310, 715.386.8217 OR 800.752.4297.