President Obama Signs Defend Trade Secrets Act

President Obama Signs Defend Trade Secrets Act

For many employers, trade secret information can be the lifeblood of their business.  Trade secrets are generally information that gives the employer an economic advantage over its competitors because it has taken reasonable measures to safeguard that information so that it is not generally known.  Examples of trade secret information can include customer lists, pricing information and product formulas or recipes, such as the recipe to Coca-Cola or the Colonel’s secret 11 herbs and spices for KFC chicken.

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Historically, trade secrets have been the subject of state law, either by statute or common law.  Many states have adopted some version of the Uniform Trade Secret Act.  The DTSA now provides certain employers remedies in federal court over and beyond what may be provided under state law.

One of the main provisions of the DTSA is that employers can now sue in federal court for misappropriation of trade secret information, provided that the information “is related to a product or service used in or intended for use in interstate or foreign commerce.”  Thus, employers will now have the option to litigate trade secret claims in federal court similar to actions for copyright or patent infringement.

The DTSA provides for a three-year statute of limitations from the date of the misappropriation or when an employer has reasonably learned of the misappropriation.  This limitations period is similar to that found in many state laws but employers are reminded that they should not wait the entire three year period before pursuing such claims.  Rather, swift action to prevent or mitigate further trade secret misappropriation is often necessary to show the court an entitlement to injunctive relief against the alleged trade secret misappropriator.

One new “weapon” in the DTSA is the provision of a new remedy: civil seizure.  This allows an employer who believes that its trade secret information has been misappropriated and that such information is in danger of being moved, hidden or otherwise disposed of by the alleged perpetrator, to obtain an order allowing law enforcement to seize the alleged trade secret information and have it held by the Court pending further hearing.  To obtain such an order, the plaintiff employer must show that equitable remedies such as an injunction are inadequate, that the employer will suffer “an immediate and irreparable injury” if seizure is not ordered, that harm to the plaintiff employer in not ordering seizure outweighs any harm to the legitimate interests of the alleged perpetrator, and that the plaintiff employer is likely to succeed in showing that its information is in fact trade secret and has been unlawfully misappropriated.  Upon receiving an order of seizure, the plaintiff employer will have to post a security, i.e., a bond or undertaking (similar to what is required in obtaining an injunction) and the court must take steps to ensure that the person subject to the seizure order is not subjected to publicity.  After the seizure has been accomplished, the court will hold a further hearing giving the defending party an opportunity to present evidence as to why the seizure was unwarranted and/or unnecessary.  The DTSA also provides a cause of action to the defending party if it sustains damage as the result of a “wrongful or excessive seizure” and that its damages are not limited to the amount of a bond posted in obtaining the seizure order.

In addition to a seizure remedy, the DTSA also provides for injunctive relief, monetary damages, punitive damages if the trade secret misappropriation is willful and malicious and attorney’s fees in certain matters.  An award of punitive damages under the DTSA may not exceed two times the award of damages and attorney’s fees may be awarded to the prevailing party if either: (1) the plaintiff’s claim for trade secret misappropriation was made in “bad faith”; or (2) if the misappropriation of the trade secret information by the defendant was willful and malicious.

A final key component of the DTSA is that it provides immunity from liability for certain confidential disclosures of trade secret information to governmental agencies or in connection with court filings.  For instance, the DTSA provides immunity if an individual discloses a trade secret, provided the disclosure is made “in confidence to a federal, state or local government official either directly or indirectly or to an attorney and solely for the purpose of reporting or investigating a suspected violation of law.”  Furthermore, an employee who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may, with immunity, disclose a trade secret to his or her other attorney and use the trade secret information in the subsequent lawsuit provided that any documents containing trade secrets are filed under seal.  Importantly for employers, they must “provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”  An employer’s failure to provide this notice in any contract entered into after the effective date of the DTSA will result in the employer being unable to recover punitive damages or attorney’s fees under the DTSA.

The DTSA is expected to provide employers additional ammunition to protect their trade secret information.  Employers should consult with legal counsel to determine whether they have information that is subject to the DTSA and if so, ensure that they are in compliance with the notice requirement to their employees.

Contributor:  James Kachmar, Shareholder | Weintraub Tobin