On May 11, 2016, the Defend Trade Secrets Act of 2016 (DTSA) officially became law and created, for the first time, a federal private civil cause of action for the misappropriation of trade secrets.  Trade secrets include confidential, commercially valuable information intended to provide competitive advantage.

Prior to this new law, civil actions for trade secret misappropriation were governed solely by state law. This state-by-state approach was viewed by some as inadequate because it led to unpredictability.  That is, what might qualify as a trade secret and receive legal protection in one state might not in another.  The DTSA is designed to solve that problem and offer a unified approach to trade secret cases.  State and federal courts, albeit in different locations, will often be interpreting this same federal law, without regard for nuances that might exist under state law from jurisdiction to jurisdiction.

Also, the lack of federal law governing conduct led to concerns that U.S. companies had inadequate recourse against thieves located overseas, and because trade secret misappropriation often involves interstate or foreign activities that create jurisdictional and choice-of-law issues, federal legislation made sense.

The DTSA does not displace or preempt state trade secret misappropriation laws, which means that parties can still base their legal claims on state law when it is to their advantage. Having a new federal cause of action available will require a careful analysis, however, of which claim or claims to pursue and the venue in which to pursue those claims.

With all that as background, some of the most significant aspects of the new DTSA are as follows:

  1. The DTSA provides a federal civil remedy for misappropriation of trade secrets. This allows companies to pursue their cases in federal courts if they wish and expands the jurisdiction of federal courts. This may make the dockets of federal judges busier.
  1. Ex parte (basically, by one party without the input or involvement of the other) seizure in “extraordinary circumstances” is allowed. This seizure may be carried out by federal law enforcement officials without the physical presence of the applicant or of state or local authorities unless allowed by the seizure order.  In other words, a plaintiff can get a court to order law enforcement to seize property to prevent misappropriation from taking place. For example, law enforcement could be ordered to take a defendant’s computer.
  1. State laws restricting restraints on employment are preserved. An injunction under the DTSA cannot conflict with applicable state laws prohibiting restraints on the practice of a lawful trade, profession or business.
  1. The DTSA offers whistleblower protections for reporting trade secret misappropriation, and allows for the recovery of a heightened level of damages, including attorney fees for certain violations.  However, if an employer does not provide notice of the immunity provisions in its written policies, it may not be awarded exemplary damages or attorney fees for willful misappropriation.

Businesses should revise client agreements, contracts and employment policies.

To take advantage of the opportunity to recover additional damages, employers must give notice of the whistleblower immunity provisions “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The term “employee” is defined as including “any individual performing work as a contractor or consultant for an employer.” The DTSA indicates that it “shall apply to contracts and agreements that are entered into or updated after the enactment of this subsection.”  Accordingly, employers should update their policies as soon as practicable to avoid any risk that they will not be able to recover exemplary damages and attorney fees in a misappropriation action against an employee who has not received notice of the immunity provision.

In other word, companies can potentially recovery more monetary damages if they provide employees with proper notice of the whistleblower immunity associated with the DTSA.  Updating client agreements, contracts and employment policies then is a “no-brainer” as it increases the opportunity for future recovery in the event that something goes wrong and provides companies with greater leverage and a greater level of protection for its trade secrets.

Understanding trade secret laws serves as a foundation for protecting important, valuable legal rights, and is a step in the direction of success for any new or emerging business. If you have questions regarding trade secrets or protecting intellectual property you should discuss them with legal counsel, who can help get the proper documentation in place or enforce your rights.