Defend Trade Secrets Act Creates New Federal Claim For Misappropriation of Trade Secrets

by Smith Anderson
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On May 11, 2016, President Barack Obama signed the Defend Trade Secrets Act of 2016 (DTSA) into law, creating a federal civil right of action for the theft of trade secrets. Until now, trade secrets had been protected only at the state level, with most states adopting their own version of the Uniform Trade Secrets Act. The DTSA is intended to supplement, rather than preempt, state trade secret law.

Pursuant to the DTSA, the owner of a trade secret may bring a private civil action for misappropriation in federal district court “if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” Misappropriation, under the DTSA, is defined as the “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means” or “disclosure or use of a trade secret of another without express or implied consent.”

HOW THE NEW LAW MAY AFFECT EXISTING TRADE SECRET LAW

  1. Access to Federal Courts and Potential for Uniformity. The most obvious change is that the new law provides plaintiffs the opportunity to bring their trade secret claims in federal district court. It also provides the opportunity for plaintiffs to take advantage of federal procedures, like nationwide subpoena power. In addition, a new federal remedy may enable the development of a uniform body of trade secret case law, which could increase predictability of trade secret protection over time.
  2. Ex Parte Seizure Order. The DTSA provides an ex parte seizure remedy that is unlike any remedies provided by state trade secret law. Under the DTSA, the court may issue an order to seize property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” Under the DTSA, a plaintiff can file an ex parte seizure application without providing any notice to the adverse party. The ex parte seizure procedure establishes a high standard that the plaintiff must satisfy in an affidavit or verified complaint in order to obtain the ex parte order and will likely apply only in extreme situations, such as where the theft of information will cause serious harm and cannot otherwise be prevented with an injunction.
  3. Whistleblower Protections and the Notice Requirement. The DTSA also contains a separate provision protecting whistleblowers who disclose trade secrets if the disclosure is made to report an alleged violation of law. The DTSA requires that employers provide notice of the whistleblower protection in any agreement with an employee that relates to the use of trade secrets or other confidential information. If the employer fails to provide this notice, then the employer may not be able to take advantage of certain remedies provided by the DTSA, including exemplary damages and attorneys’ fees. 
  4. Rejection of the Inevitable Disclosure Doctrine for Obtaining Injunctive ReliefThe inevitable disclosure doctrine, recognized only in some states, allows employers to enjoin former employees from working for competitors where employees may inevitably disclose or use their knowledge of the employer’s trade secret information in their new employment. The DTSA rejects the inevitable disclosure doctrine for injunctive relief for threatened misappropriation. The “threatened misappropriation” provision of the DTSA allows an employer to obtain an injunction to prevent an employee from taking a job based on “evidence of threatened misappropriation,” but “not merely on the information the person knows.”

HOW EMPLOYERS CAN PREPARE

In addition to the steps that employers already should be taking to protect their trade secrets, including using confidentiality agreements with employees and implementing measures that reasonably protect the secrecy of the company’s trade secrets, employers can take further steps in light of the new federal law:

  1. Review Employment Policies and AgreementsEmployers should review their company’s policies and agreements to ensure they include required language under the DTSA regarding the whistleblower provisions. The failure to include this required language prevents an employer from obtaining exemplary damages and attorneys’ fees.
  2. Evaluate Strategy for Proceeding Under State Law, the DTSA, or BothBefore a trade secret claim arises, employers should evaluate their state law and the DTSA to determine the advantages and disadvantages of bringing a trade secret misappropriation claim under state law, the DTSA, or both. Time spent thoroughly performing this evaluation on the front end will maximize the opportunity to enforce a company’s trade secret rights when the emergency arises.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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