Misappropriation of Trade Secrets: Make a Federal Case Out of It (Under the Defend Trade Secrets Act)

by Hirschfeld Kraemer LLP
Contact

Last month, President Obama signed the Defend Trade Secrets Act (“DTSA”) into law, which permits plaintiffs to bring civil claims for misappropriation of trade secrets in federal court.  While trade secret theft has been a federal crime since 1996, civil claims for such theft were, until now, generally available only through the state courts.  That state-level relief is provided though the Uniform Trade Secrets Act, which was adopted, modified and interpreted differently by California and 47 other states—resulting in varying levels of protection among the different jurisdictions.  The DTSA brings true uniformity to trade secret lawsuits to the extent that complaints are brought at the federal level.  At the same time, the new law adds a layer of complexity for companies seeking to protect trade secrets: since the DTSA does not preempt state law, trade secrets issues are now governed by federal and state law.

Significant aspects of the new law include:

Whistleblower Immunity

The DTSA provides civil and criminal immunity for employees, contractors and consultants who disclose trade secrets to a government official or an attorney “solely for the purpose of reporting or investigating a suspected violation of law” or in a court filing made under seal.  In addition, employers must give notice of this immunity in any confidentiality or trade secret agreement entered into with an employee or contractor after May 11, 2016.   Employers who fail to do so will not be able to recover exemplary damages or attorneys’ fees provided for in the DTSA.

Employee Mobility

Under an “inevitable disclosure doctrine” in effect in many states, employers are able to enjoin employees from accepting employment elsewhere by showing that the employment would inevitably lead to a disclosure of the employer’s trade secrets.  California courts have rejected this doctrine as an unlawful restraint on employee mobility.  The DTSA also rejects the doctrine by specifying that federal courts may not use the doctrine to enjoin individuals from entering into employment relationships.  However, the Act permits courts to impose conditions on a new employment relationship where there is evidence of threatened misappropriation—a higher bar than an injunction premised on “inevitable disclosure,” i.e., merely on the basis of an employee’s knowledge.

Ex Parte Seizure

The DTSA provides employers with a new powerful tool to protect trade secrets that is currently not available under California state law: ex parte orders for the seizure of property necessary to prevent propagation or dissemination of a trade secret.   However, the usefulness of this tool is limited by the requirements for the issuance of such an order.  To issue a seizure order, a court must find that:

  • another form of equitable relief would be inadequate because the party to be enjoined would evade, avoid, or otherwise not comply;
  • an immediate and irreparable injury will occur if such seizure is not ordered;
  • the harm to the applicant outweighs the legitimate interests of the person against who seizure would be ordered and substantially outweighs the potential harm to third parties;
  • the applicant is likely to succeed on the merits;
  • the person against whom seizure would be ordered has actual possession of the trade secret;
  • the application describes with reasonable particularity the matter to be seized;
  • the person against whom seizure would be ordered would destroy, move, hide, or otherwise make such matter inaccessible to the court; and
  • the applicant has not publicized the requested seizure.

Additionally, the order itself must detail these findings of fact and meet various other requirements.  In short, an ex parte seizure order will be permitted only in “extraordinary circumstances,” and a plaintiff hoping to use the seizure process should complete a full factual investigation before seeking this relief.

The DTSA applies to any claims for alleged trade secret misappropriation crossing state and national borders that occurred on or after May 11, 2016.  Going forward, employers will need to carefully consider the benefits of proceeding with trade secret theft claims in federal court.  More immediately, employers should, with the aid of counsel, review their employment and confidentiality agreements to ensure that the agreements contain either the required DTSA immunity notice or a cross-reference to the employer’s policy document for reporting a suspected violation of law.

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.

© Hirschfeld Kraemer LLP | Attorney Advertising

Written by:

Hirschfeld Kraemer LLP
Contact
more
less

Hirschfeld Kraemer LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.