16 May 2016

Federal Defend Trade Secrets Act

The Defend Trade Secrets Act (“DTSA”) is a new law that creates a federal private right of action for misappropriation of trade secrets. Before the enactment of the DTSA, employers had to rely on state laws to protect their trade secrets. While the DTSA provides federal protection for trade secrets, it does not preempt state laws regarding trade secret misappropriation.

The DTSA does not substantially alter the trade secret protection afforded by most state laws, but it does create whistleblower immunity with respect to a disclosure of trade secrets under limited circumstances and also provides employers with the right to protect their trade secrets in federal courts. The DTSA also contains a “seizure” provision, which allows courts to order, in extraordinary situations, “seizure of property necessary to prevent the propagation or dissemination of the trade secret” at issue in the litigation. Courts are permitted to order the seizure of property ex parte.

Additionally, the DTSA requires employers to provide a notice of immunity to employees, independent contractors, and consultants in any agreement that governs the use of trade secret or other confidential information that is entered into or updated after May 12, 2016. Failure to comply with the notice requirement bars employers from collecting exemplary damages or attorney fees in an action alleging a violation of the DTSA.

The DTSA is effective immediately and applies to “any act” that occurs on or after the date of enactment. Thus, employers will have to be compliant beginning immediately. Employers who have not already done so should take the following steps:

  • Review Whistleblower Immunity
    An action that would otherwise count as trade secret misappropriation will be immunized from criminal and civil liability at both the state and federal level if the disclosure: “(A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; (ii) and solely for the purpose of reporting or investigating a suspected violation of law or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”
  • Update or Create Policy Documents Providing Notice of Whistleblower Immunity
    Employers are required to provide notice of immunity in any contract or agreement entered into or updated after May 12, 2016 with an employee, independent contractor, or consultant if that agreement governs the use of a trade secret or other confidential information. The DTSA provides that this can be accomplished by referencing a policy document rather than restating the entire immunity provision in each agreement.
  • Ensure that New or Revised Contracts and Agreements with Employees or Independent Contractors Contain Immunity Notification Language
    If the employer has not updated or created policy documents providing notice of the whistleblower immunity, the employer should be sure to include the mandatory notice in any new or revised agreements with employees, independent contractors, or consultants that may include trade secret or confidential information use restrictions.

If you are unsure whether proceeding under DTSA is more advantageous than under the State Trade Secrets act, please contact the authors or your Miller Johnson attorney.