The Newly Enacted Defend Trade Secrets Act: What Retailers Should Know

by Goulston & Storrs PC

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (the DTSA), creating the first Federal civil cause of action for misappropriation of trade secrets. The DTSA overlaps substantially with, and does not preempt, the trade secret acts already existing at the state level and adds an additional, powerful tool for protecting trade secrets in federal court that may have been previously unavailable to trade secret owners. Unlike state trade secret laws, the DTSA applies only to interstate and foreign commerce.

Retailers seeking to enhance the protection of their trade secrets should be aware of some of the very important facets of the DTSA and take steps now to avail themselves of the advantages the DTSA offers.

Forms of Relief

There is a three-year statute of limitations for a claim brought under the DTSA commencing on the date misappropriation is either actually discovered or by the exercise of reasonable diligence should have been discovered. The DTSA cannot be applied retroactively, meaning the DTSA cannot be used for claims of misappropriation occurring before May 11, 2016, even when the act of misappropriation is discovered after May 11, 2016.

To many retailers, injunctive relief preventing disclosure of trade secret information is most important. Monetary relief is also available, including actual damages, damages from unjust enrichment, or a reasonable royalty derived from sales of products or services utilizing the misappropriated information. For willful or malicious misappropriation, double damages and attorneys’ fees may also be available.

Perhaps the most significant remedy available under the DTSA is an ex parte order authorizing law enforcement to seize property without notice to the defendant. In “extraordinary circumstances,” a court may “issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret.” The DTSA sets forth very specific and strict guidelines necessary for the issuance of what is often considered a drastic remedy. This remedy may be particularly powerful when, for example, a former employee downloaded trade secret information intending to disclose it to a competitor.

Preventing Misappropriation by Former Employees

Retailers, like many employers, may utilize the DTSA to prevent the disclosure of trade secret information by former employees to competitors through the above forms of relief. However, to gain the benefit of double damages and attorneys’ fees for misappropriation by an employee, contractor or consultant, the governing agreement must include an express written whistleblower immunity notification advising employees, contractors or consultants of their right to immunity for disclosing trade secret information in confidence to a government authority in order to report a violation of law. The inclusion of such a provision only applies to agreements entered into on or after May 11, 2016. To be clear, the DTSA does not mandate that all agreements contain such a provision, only that the employer may not be entitled to the benefit of these enhanced damages and attorneys’ fees if such a provision is not included.

The DTSA expressly rejects the inevitable disclosure doctrine. In practical terms, this means that the basis for relief cannot rest on the assumption that the former employee’s knowledge of the trade secret will be passed on to his or her new employer. Instead, injunctive relief that would prevent or restrict future employment by a former employee must be “based on evidence of threatened misappropriation and not merely on the information the person knows.”

Things to Be Doing Now to Take Advantage of the DTSA
  • Audit internal measures and procedures for protecting potential trade secret information, including reviewing and implementing non-disclosure agreements and security protocols, and confirming exactly who has access to such information.
  • Review and revise form employment, contractor and consultant agreements to include whistleblower immunity provisions so the benefits of enhanced damages and attorneys’ fees for misappropriation may be available.
  • Consider the availability of ex parte seizure orders in extreme cases where flight, destruction of evidence, or imminent disclosure of the trade secret by the wrongdoer are of serious concern.
  • In each potential case, consider the advantages of being in state versus federal court, as the federal courts have original, but not exclusive, jurisdiction to hear claims brought under the DTSA.

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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