Last month, we posted about the United States Senate’s passage of the Defend Trade Secrets Act of 2016. Breaking news: It passed. Thanks to members of our Labor & Employment (Ian Clarke-Fisher) and Intellectual Property Litigation groups (Jim Nault) for this guest post.
On May 11, 2016, President Barack Obama signed the Defend Trade Secrets Act of 2016 (the “DTSA”), providing a federal civil cause of action for the misappropriation of trade secrets under the Economic Espionage Act. Both the Senate and House of Representatives passed the DTSA with near unanimous support in April. A link to the DTSA can be found here.
Moving forward, the DTSA appears to provide manufacturers with a new avenue to address a wide range of trade secret issues. In addition, in light of the notice requirement contained in the DTSA, employers should review their confidentiality agreements, provisions, and policies to determine how best to navigate the new law.
For companies with trade secrets “related to a product or service used in, or intended for use in, interstate or foreign commerce,” the DTSA provides the following important provisions, among others:
· Federal Civil Action. The DTSA creates a federal civil cause of action, giving original jurisdiction to United States District Courts. This will allow companies to decide whether to bring claims in federal or state courts, and may have the net effect of moving most trade secret litigation to federal courts. Such a move will invariably include federal supplemental jurisdiction for claims for breach of contract, related common law claims, and state statutory claims. Importantly, similar to federal employment laws, the DTSA does not supersede state trade secret laws.
· Seizure of Property. The DTSA includes a provision that permits the Court to issue an order, upon ex parte application in “extraordinary circumstances,” seizing property to protect against to improper dissemination of trade secrets. Interestingly, the DTSA permits such an order only if the moving party has not publicized the requested seizure. If granted, the Court is required to schedule a seizure hearing and the moving party will be required to provide security in an amount to be determined by the Court for the payment of any possible damages suffered as the result of a wrongful or excessive seizure.
· Damages and Attorney’s Fees. In addition to the seizure of property and injunctive relief, the DTSA permits for the recovery of damages for actual losses and unjust enrichment, and allows for exemplary (double) damages trade secrets that are “willfully or maliciously misappropriated.” The DTSA also provides for the recovery of reasonable attorney’s fees in limited instances, including if the Court determines that the claims of misappropriation were brought in bad faith.
· Whistleblower Protections and Notice Requirement. The DTSA further includes civil and criminal immunity under federal and state trade secret laws for any disclosures made to a governmental agency for the purpose of reporting or investigating a legal violation or filed in a lawsuit, if such filing is made under seal. Furthermore, and having likely broader application, the DTSA requires that an employer provide notice of these protections in any employment agreement governing confidential information or provide a cross-referenced policy document setting forth the employer’s reporting policy. Failure to comply with the notice requirement prohibits the recovery for exemplary damages and attorney’s fees under the DTSA.