• New Trade Secrets Law Requires Update to Confidentiality Agreements
  • September 11, 2016 | Author: David A. Kushner
  • Law Firm: Willcox & Savage, P.C. - Norfolk Office
  • On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA). Prior to the passage of this law, there was no federal cause of action for the misappropriation of trade secrets. Instead, trade secret litigation was governed by state law, with most states having adopted the Uniform Trade Secrets Act. Because of the lack of a federal remedy for trade secret theft, victims of such theft were (in most cases) unable to utilize the broad power of the federal courts as a tool to minimize the impact (and maximize the punishment) for trade secret misappropriation.

    After the passage of the DTSA, trade secret owners will for the first time have the option of bringing trade secret litigation under federal law and in federal court. Unlike federal patent and copyright law, the DTSA does not preempt state trade secret legislation, so a victim of misappropriation will be able to bring a claim under federal and state law.

    Under the DTSA (as under most state trade secret law) a plaintiff may recover damages for actual losses, unjust enrichment on the part of the defendant, or alternatively, a reasonable royalty related to the value of the misappropriated trade secret. As an additional remedy not available under most state laws, the DTSA grants federal courts the authority to double the damages awarded if the plaintiff shows that the misappropriation of the trade secret was done willfully and maliciously. Another advantage of the DTSA over state actions is that the DTSA authorizes courts to order law enforcement throughout the nation to seize property believed to contain the trade secrets, as long as such seizure is necessary “to prevent the propagation or dissemination of the trade secret.”

    These additional remedies make the DTSA a powerful new tool for those affected by trade secret misappropriation.

    Importantly, the DTSA provides employee immunity against criminal and civil liabilities for trade secret disclosures made to government officials or to an attorney for the sole purpose of reporting or investigating a violation of the law. As part of this new “whistleblower” protection, the DTSA requires businesses to provide notification of such immunity by placing a provision in any employment or independent contractor agreement containing confidentiality or trade secret provisions. If a business fails to provide the required notice, the business may not recover the double damages or attorneys’ fees typically allowed in a DTSA action.

    The notice requirement only applies to agreements signed after May 11, 2016, and entities that executed prior agreements do not need to sign new agreements as a result of DTSA. However, it is critical that businesses have their employment or intellectual property lawyers update their employment and independent contractor agreements to reflect the language required by the Defend Trade Secrets Act.

    Advancing technology continues to make it easier to copy and transfer large amounts of information, often in a manner that is difficult to trace. Thus, it is not surprising that potential trade secret theft has become a major issue for most businesses. Having a federal remedy for such violations will provide significant advantages to affected businesses.

    To take advantage of the full scope of the federal protections, it is important that businesses update their confidentiality, intellectual property, and non-compete agreements, as well as any other agreements related to confidential information or trade secrets, to reflect the new required language.

    It is also important to remember that a business seeking to prove trade secret theft under DTSA or state law will be required to show that it took reasonable efforts to maintain the secrecy of its trade secrets. Our firm’s lawyers have substantial experience advising companies on how to ensure that their trade secret protection strategies and policies are reasonable under the circumstances, and we welcome the opportunity to provide a consultation on this subject.