Authored by Andrew McNeil
Want to make a federal case out of your trade secrets? It got easier to do just that after President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law on May 11, 2016. Effective immediately, DTSA creates a federal civil action for the owner of a trade secret that “is related to a product or service used in, or intended for use in, interstate or foreign commerce.” In other words, if you have a trade secret, you probably have a trade secret protected by the DTSA.
In many ways, the DTSA is similar to the Uniform Trade Secrets Act (“UTSA”), which has been adopted or introduced for adoption in every state in the Union except for North Carolina. An early comer to the UTSA, Indiana passed it into law in 1982. The DTSA and the UTSA both provide for injunctive and monetary relief for the “misappropriation” of a “trade secret,” and both laws similarly define those and related concepts.
The DTSA adds some wrinkles, though, that are unique to it. While both state and federal law authorize courts to issue injunctions relating to the misappropriation of trade secrets, DTSA expressly authorizes a “seizure” process. Under this process, a party may ask the court, without a hearing, to direct the United States Marshals to seize the trade secret in issue and place it in the custody of the court while the parties litigate over the substantive claims. After ordering a seizure, the court is authorized to issue a wide array of orders, including ordering expedited proceedings, prohibiting any party (including the applicant) from accessing the trade secret, and requiring a bond in case the seizure turns out to be a mistake.
The DTSA also tackles the “inevitable disclosure” theory. Under that theory, plaintiff employers argue that their former employees cannot work for a competitor because the former employees are so imbued with the former employers’ trade secrets and would inevitably disclose those trade secrets in the course of working for a new employer. The DTSA expressly provides that any injunction prohibiting the actual or threatened misappropriation of a trade secret cannot prevent a person from entering into an employment relationship and that any conditions placed on such employment must be based on evidence of threatened misappropriation, not merely on the information the person knows.
Lest one assume that the DTSA is just for lawyers, all employers with trade secrets have some work to do, too. The DTSA contains a two-fold “immunity” provision for whistleblowers. First, the DTSA provides that an individual who discloses a trade secret in confidence to a federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of the law is immune from liability under the DTSA for that disclosure. Second, the DTSA authorizes an employee who files a lawsuit for retaliation by an employer for reporting a suspected violation of law to disclose the trade secret in those court proceedings without liability, provided the disclosure is made under seal.
Now comes the practical part for employers. The DTSA requires all employers, regardless of size, to provide employees notice of the immunity provisions of the DTSA “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The contract provision must also cross-reference the employer’s policy document “that sets forth the employer’s reporting policy for a suspected violation of law.” If an employer does not comply with this notice requirement, “the employer may not be awarded exemplary damages or attorney fees . . . against an employee to whom notice was not provided.”
As with many new federal laws, it is time to review your contracts and policy documents to ensure they comply with DTSA. It is also a good time to review all matters related to the development and preservation of the company’s intellectual property—patents, trademarks, copyrights and trade secrets. They often overlap or work together, and for the first time they are all covered by federal law.
If you have any questions on your contract and policy documents please contact your Bose McKinney & Evans LLP attorney.