On May 12, 2016 President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law, creating for the first time Federal cause of action for misappropriation of trade secrets, and placing trade secrets in virtually the same sphere of relevance as patents, copyrights, and trademarks. Major highlights of the law are summarized below.
DTSA/State Law
The new law does not replace individual state trade secret laws, however it makes significant strides toward providing a uniform set of rules for trade secret protection throughout the US. Importantly, the DTSA provides rules that set forth a definition of a trade secret, the acts and the proof necessary to show misappropriation, as well as available remedies. Instead of relying on individual state definitions, plaintiffs may now utilize the uniform definitions provided by DTSA to enforce and protect their rights across state lines.
Civil Seizure
In situations comprising “extraordinary circumstances”, the DTSA provides a mechanism for plaintiffs to protect their trade secrets via civil seizure of the relevant property. The purpose of civil seizure is to allow businesses to utilize courts to temporarily seize property in order to prevent the dissemination of a trade secret until a full hearing takes place. In order for a court to issue an ex parte seizure order, several determinations must be made, including (but not limited to) establishing the following:
- Other forms of relief would be inadequate, immediate and irreparable injury would occur without the seizure.
- The party requesting the seizure would likely prevail in its cause of action to demonstrate trade secret misappropriation by the party subject to the seizure order,
- The party subject to the seizure order would likely destroy the property (unless it is seized).
Additionally, the DTSA requires that the party requesting the order must not publicize the request for the seizure order.
Damages & Remedies
The DTSA provides traditional injunctive relief and damages, “exemplary damages,” (which are not to exceed double damages) and attorneys’ fees. In circumstances where misappropriation is “willful and malicious”, or a claim of misappropriation is filed in bad faith, or a motion to terminate an injunction is made or opposed in bad faith, attorneys’ fees are available.
In addition, the DTSA amends the Economic Espionage Act of 1996 by increasing the maximum penalty for a criminal violation from $5 million to “the greater of $5,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.”
Immunity for Confidential Disclosure
In circumstances where a trade secret must be revealed, for example to a law enforcement official for exposing or reporting a violation of law, the DTSA provides immunity to the whistleblower. Importantly, in agreements governing the use of a trade secret or other confidential information with an employee, signed or updated after the DTSA’s enactment, employers now have a mandatory duty to explain that a confidential disclosure to government officials or attorneys “solely” for purposes of reporting or investigating a “suspected violation of the law” (or disclosures made in an under-seal complaint) is immune from civil and criminal liabilities under federal and state trade secret laws. In the absence of such a statement, a trade secret owner loses the right to seek fee-shifting or exemplary damages for misappropriation.
Employers are advised to review and revise confidentiality and trade secrets provisions in employment agreements and standalone confidentiality and trade secrets agreements to include the new disclosure immunity notices (or cross-reference applicable policies). Although pre-enactment agreements governing use of confidential information or trade secrets are grandfathered, employers that take these remedial steps promptly will preserve their right to seek attorneys’ fees and exemplary damages in the event of an actionable willful and malicious misappropriation down the road.
Recommendations From KPPB LAW
In light of the DTSA, we recommend that employers revisit company trade secret policies to ensure that they are in line with the provisions of the new law. The protection of trade secrets places responsibilities on employers to take active measures to preserve confidentiality. In addition, we recommend that employers update employment agreements to reflect the new immunity provisions.
The lawyers at KPPB LAW regularly advise clients on the protection of their intellectual property including patents, trademarks, copyrights and trade secrets and are available to assist with the implementation of new policies and requirements. For more information on the Defend Trade Secrets Act of 2016 and its impacts, contact KPPB LAW at 678.443.2220 or email us at info@kppblaw.com.