- Congress Passes the Defend Trade Secrets Act
- July 26, 2016
- Law Firm: - Office
Congress has passed and President Obama intends to sign the Defend Trade Secrets Act, which provides companies with the ability to bring suit in federal court for the misappropriation of their trade secrets, including by current or former employees.
Currently, the Economic Espionage Act of 1996 protects trade secrets at the federal level, but does not permit private suit for violations of the law. Companies seeking to enforce their rights in court have had to rely on state laws, most of which are based on the Uniform Trade Secrets Act but contain variations from state to state. The DTSA does not preempt state laws, but now offers some uniformity with regard to federal level enforcement of trade secret protections.
Some key provisions of the DTSA include:
Civil Seizure. In “extraordinary circumstances,” the DTSA will allow the civil seizure of property “necessary to prevent the propagation or dissemination of the trade secret...” If the seizure is wrongful or excessive, however, the individual whose property has been seized may bring suit for damages against the seizing entity.
Private Action. The company may bring suit to seek injunctive relief, damages (e.g. actual costs, unjust enrichment or a reasonable royalty), exemplary (i.e. punitive) damages of up to two times the amount of damages for willful and malicious misappropriation, and attorneys’ fees. Notably, the injunctive relief will not include preventing an individual from entering into another employment relationship.
Whistleblower Protections. The DTSA protects individuals, including employees, who disclose a trade secret to a governmental official or an attorney in reporting or participating in an investigation of a suspected violation of the law. Disclosures made under seal in the course of litigation are also protected.
The DTSA requires employers to provide notice of this immunity for lawful disclosures “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information” - e.g. non-disclosure or confidentiality agreements. This applies to any agreements or contracts entered into after the law’s enactment date. Employers may meet this notice requirement by cross-referencing a policy that sets forth the employer’s reporting procedure for suspected legal violations (i.e. a whistleblower policy). Employers who fail to provide this notice will not be able to obtain exemplary damages or attorney’s fees in a DTSA suit.
What Should Employers Do? Employers will need to ensure that any confidentiality or non-disclosure agreements with employees, as well as other third parties, contain the necessary immunity notice. In addition, employers may wish to review the policies and procedures they have in place to protect trade secrets, and ensure that they are as effective as possible. This may include physical security as well as encryption or password protection for electronic information.