Defend Trade Secrets Act — Implications for Private Funds

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On May 11, 2016, the federal Defend Trade Secrets Act (DTSA) became law.  The DTSA provides trade-secret protections on the federal level that are similar to those available through the Uniform Trade Secrets Act (UTSA) adopted (with variations) in 48 States.  The DTSA will have at least three effects upon private funds, particularly those with public investors.

First, the DTSA has a broader definition of “trade secret” than the UTSA, which means that more fund materials (e.g., formation and governing documents) may now qualify for protection from disclosure under State open-records and open-meetings laws.  For example, where a State law provides that “other law” can exempt certain information from disclosure, the DTSA may now qualify as that separate basis to protect fund documents possessed by public investors.

Second, the DTSA independently may provide further protections for fund documents as “trade secrets” under its broader definition.  The DTSA (through the Economic Espionage Act of 1996) defines a “trade secret” to include “all forms and types of financial, business, scientific, technical, economic, or engineering information,” which is broader than the “information” without elaboration protected under the UTSA.

Further, while the UTSA only specifically includes “formula, pattern, compilation, program, device, method, technique, or process” as examples of protected “information,” the DTSA also lists plans, compilations, procedures, and codes, regardless of how they are memorialized and whether they are tangible or intangible.  These broader categories of specifically protected information may assist private funds not only in protecting information from disclosure under open-records laws, but may provide additional protection and enforcement options for unauthorized disclosure of fund documents or information.

Third, the DTSA may affect a private fund’s disclosure strategy and litigation options when unauthorized disclosure occurs.  The DTSA provides for ex parte civil seizure of trade-secret information in extraordinary circumstances, a remedy not previously available under the UTSA.  The DTSA, however, also grants civil and criminal immunity to whistleblowers who disclose trade secrets to the government in confidence, and requires employers to notify employees of whistleblower immunity.  Private funds should therefore consider reviewing employment manuals and contracts to account for these new whistleblower protections.

With the passage of the DTSA, private funds should be cognizant of their obligations regarding whistleblower immunity, and of potential new grounds to assert trade-secret protection and seek additional enforcement options where misappropriation occurs.

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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. Attorney Advertising.

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