Federal Defend Trade Secrets Act Signed Into Law
On May 11, 2016, President Barack Obama officially signed the Defend Trade Secrets Act (“DTSA”) into law with broad bipartisan support from the House and Senate. This comes nearly three years after the Obama Administration released its “Strategy on Mitigating the Theft of U.S. Trade Secrets,” a report detailing its commitment to addressing trade secret misappropriation in a rapidly-advancing technological age. The new law creates a federal private cause of action for trade secret theft and misappropriation. Beyond the significance to trade secret protection itself, the new law has some significant employment law implications for companies who maintain trade secret information and who include trade secret protections in various employee agreements.
Currently, trade secret misappropriation actions are handled almost exclusively at the state level. Although most states have adopted some form of the Uniform Trade Secrets Act, states vary in their interpretation and application of the law. The DTSA will provide uniformity across the jurisdictions and allow plaintiffs easier access to federal courts that may be better equipped to manage complex and multi-state issues. It will not, however, preempt current state trade secret laws—instead, plaintiffs may opt to sue under state laws to keep their suits in state court.
A distinct and powerful feature of the DTSA is its civil seizure clause. This provision authorizes federal courts, in extraordinary circumstances, to issue ex parte orders to prevent the propagation or dissemination of a trade secret. However, if this provision is abused, the DTSA allows the party whose property was wrongfully seized to seek damages.
Importantly, DTSA also uniquely provides immunity for individuals who disclose a trade secret to the government, a court, or an attorney for the purpose of cooperating in an investigation or filing a complaint of wrongdoing. The disclosure to the government or attorney must be made “in confidence.” If the disclosure is “in a complaint or other document filed in a lawsuit or other proceeding,” it must be “made under seal” in order for the immunity to attach. The Act also authorizes an individual to use trade secret information “in a lawsuit for retaliation by an employer for reporting a suspected violation of law.” This is the whistleblower protection provision, and its scope remains to be determined.
Employers are required to notify employees of this provision in any contract or agreement that governs the use of company trade secrets. Employers who fail to comply with this notice requirement will be unable to seek exemplary damages or attorneys’ fees should they later bring a claim against an employee under the DTSA.
The new law is certain to create concern for many companies that have generated and seek to protect valuable trade secret information. The notice requirement will have to be implemented in many existing employment contracts to preserve employer rights. Additionally, the immunity provisions have the potential to give employees the false sense that they can freely disclose trade secrets. It will be imperative for employers to educate employees about their rights under the new law, as well as the importance of maintaining the confidentiality of trade secret information.