The Defend Trade Secrets Act (DTSA) s a federal law that provides employers with some important benefits. However, employers wishing to take advantage of the new law should revisit policies and agreements, such as handbooks and non-disclosure agreements that restrict the use and disclosure of trade secrets.
The Defend Trade Secrets Act
President Obama signed the DTSA into law on May 11, 2016. The law for the first time grants private companies a federal claim for misappropriation of trade secrets.
The new law provides key benefits to businesses. Before the DTSA, private companies exclusively relied on state law for trade secrets claims, often via some variation of the Uniform Trade Secrets Act (UTSA). Because states adopted different versions of the UTSA, multi-state and international businesses encountered inconsistent procedural and substantive rules. Further, absent another basis for federal court jurisdiction – such as diversity of citizenship or another federal law – these cases had to be filed in state courts.
The DTSA does not contain its own definition of “trade secret.” It relies on the existing definition in the Economic Espionage Act which is similar to the definition in the UTSA. The new law expressly adds “misappropriation” to the Economic Espionage Act’s definitions. That definition also is similar to that found in the UTSA.
As stated, the DTSA provides district courts with “federal question” jurisdiction to hear trade secret misappropriation cases. Businesses will have greater access to the courts, particularly if the business operates principally in one state, but seeks to sue an out of state employee. The federal forum also offers uniform civil procedure and evidence standards, which provides welcome consistency for businesses litigating in multiple forums.
Some remedies under the DTSA are similar to those under the UTSA/state law. Victims of trade secret misappropriation may seek (1) injunctive relief for actual or threatened misappropriation, (2) damages, and (3) the possibility of double damages and attorneys’ fees for willful and malicious misappropriation (provided employers comply with the notice provisions discussed below).
The DTSA also provides for a significant remedy not necessarily available in state court. In limited circumstances, the plaintiff may seek a short-term, ex parte seizure of the allegedly misappropriated trade secret and related materials. The court will hold the seized materials until a hearing determines whether they were properly seized. However, Congress also provided that courts must be careful to avoid granting injunctive relief – such as injunctions creating “non-compete” orders – if doing so would violate state law.
The DTSA may provide less protection for trade secrets than state law under certain circumstances. The DTSA expressly exempts from its provisions the disclosure of trade secrets in two narrow situations. First, the DTSA protects against the disclosure of trade secrets to a lawyer, law enforcement, or government official, “solely for the purpose of reporting or investigating a suspected violation of law.” Second, the DTSA exempts the disclosure of trade secrets in a court document, filed under seal. These provisions may give businesses pause because many state laws do not contain analogous provisions.
The DTSA includes a new notice provision concerning the whistleblower protections. Employers must provide notice of the immunity discussed above “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” These agreements may include employment and independent contractor agreements, consulting agreements, severance agreements, and confidentiality or non-disclosure agreements. The notice in these agreements may be express, or the employer may cross-reference an existing policy document that has been delivered to the employee (e.g., a policy in the employee handbook).
Failure to include the new notice provisions bars an employer from earning double damages or attorneys’ fees in a misappropriation suit against an employee. However, the notice provision requirement applies only to contracts or agreements entered into or modified on or after May 11, 2016. Tips for Employers
Employers should review their policies and agreements addressing confidential information and trade secrets. As stated, to earn double damages and attorney fees in the event of a misappropriation suit against an employee, employers must comply with the notice provisions discussed above. Employers should consult with counsel about whether it is better to have a separate policy or to include the full notice provision within the agreement itself.
Remedies aside, many employment agreements such as “non-disclosure” or confidentiality agreements contain choice of law and forum selection clauses. It is now possible to select federal courts and federal law for trade secret disputes. Again, it is important to consult counsel about the pros and cons of selecting a federal forum.