Business Owner’s Guide to the Defend Trade Secrets Act of 2016
Published November 29, 2016
On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (“DTSA”), an amendment to the Federal Economic Espionage Act of 1996, which created a federal civil cause of action for trade secret misappropriation. Federal jurisdiction carries with it many benefits, not least of which is establishing a nationally applicable body of law regarding trade secrets. Individual states have long enforced their versions of the Uniform Trade Secrets Act (“UTSA”), but significant variations exist among the jurisdictions. DTSA has been touted as a way to introduce more predictability into trade secret law. It is still too soon to know whether this hope will be born out. Importantly, DTSA does not preempt existing state-based trade secret law. To the extent that differences between the state and federal law persist, protections afforded by the laws will also differ. As such, it is likely that state trade secret law and DTSA will evolve as parallel laws. So, what do you need to know as a business owner to protect your trade secrets in light of this new law? Read on.
For a more thorough look at what a trade secret is, check out our blog from October 2016: http://www.optimalawgroup.com/blog/trade-secrets. What follows is a quick, high-level look at trade secrets. Trade secrets are legally protectable information and can include a formula, pattern, compilation, program, device, method, technique, or process. The common definition of a trade secret has three parts: (1) information; (2) reasonable measures taken to protect the information; and (3) which derives independent economic value from not being generally known. Misappropriation of a trade secret commonly occurs in one of two ways: (1) an individual personally acquires a trade secret by improper means; or (2) an individual publishes a trade secret and he knows that the person who gave him the information acquired it through improper means or under circumstances giving rise to a duty to maintain its secrecy or limit its use. "Improper means" include theft, fraud, bribery, industrial espionage, breaching a contractual duty to keep something confidential, or inducing others to breach that duty.
Much of DTSA protections are on track with UTSA. For example, DTSA provides for injunctive relief for actual or threatened misappropriation, monetary damages for actual losses and unjust enrichment, and exemplary damages for willful and malicious misappropriation – similar to UTSA. One marked departure, however, is the creation of an ex parte seizure provision allowing courts to seize property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” This relief is only available in extraordinary situations and is guarded by steep penalties for any plaintiff willing to abuse it. But, it provides a mechanism to prevent the destruction or concealment of trade secrets due to advanced notice to the defendant.
As a business owner, you need to know that DTSA has placed an affirmative obligation on companies like yours. Namely, you will need to include an advisement to employees about whistleblower protections afforded by DTSA in documents governing the use of trade secrets or other confidential information. Failure to provide this required disclosure limits the plaintiff’s ability to recover exemplary damages and attorney’s fees in instances of wrongful disclosure. We recommend that you review all your contracts, but pay special attention to employment agreements, consulting agreements, non-disclosure agreements, and proprietary rights agreements. These are the most likely places you will need to include the disclosures discussed above and will likely require modifications. We have already drafted the language required to comply with the law and we would love to work with you to bring your agreements into compliance.
Trade secret law is only becoming more complex with the newly enacted law. Questions about whether your business is required to incorporate the new disclosures and how to do so? If you have any questions or concerns about whether you should be protecting potential trade secrets, or any other intellectual property, give us a call at 858-964-4697 or shoot us an email at email@example.com. We would love to hear from you.