New Defend Trade Secrets Act Creates Action Item for Employers

06.29.2016

President Obama recently signed into law the Defend Trade Secrets Act (the “DTSA”), to be effective immediately.  The DTSA provides a powerful new tool for companies operating in competitive industries, as it allows private businesses to protect their trade secrets by filing suit in federal court. The DTSA does, however, contain protections for whistleblowers and requires that companies provide notice of these protections in agreements addressing trade secrets and other confidential information.  Failure to provide the required notice can limit a company’s available remedies under the DTSA.

The DTSA creates a federal civil cause of action for misappropriation of a trade secret that is related to interstate or foreign commerce (state laws have existed for years). As most trade secrets will fall within this category, the DTSA provides a federal forum for the vast majority of trade secret claims.  As the DTSA does not displace state law, companies can bring a DTSA claim alongside state trade secrets claims and other state common law remedies to protect against unfair competition. The DTSA contains many of the same or similar provisions as the Uniform Trade Secrets Act (“UTSA”), which has been adopted, in whole or in part, by nearly every state. Like the UTSA, the DTSA provides for injunctive relief, compensatory damages, exemplary damages (of up to twice the amount of compensatory damages for willful and malicious misappropriation), and reasonable attorneys’ fees for the prevailing party in certain circumstances. Additionally, in a significant departure from the UTSA, the DTSA authorizes a court “in extraordinary circumstances” to seize property necessary to prevent the dissemination of stolen trade secrets.

However, if a company fails to provide notice of the DTSA’s whistleblower immunity provisions to an employee, a court will not award exemplary damages or attorneys’ fees in an action against the employee for trade secret misappropriation. Specifically, the DTSA provides whistleblower immunity for the disclosure of trade secrets:

• To government officials or attorneys for the purpose of reporting suspected violations of the law;
• In a complaint or other document filed under seal in a legal proceeding; or
• For use in an anti-retaliation lawsuit in certain circumstances.

The DTSA requires employers to give employees, contractors, and consultants notice of this potential immunity in any contract or agreement entered into or amended after May 11, 2016 that governs the use of a trade secret or other confidential information. Companies may comply with the notice requirement by either restating the requisite immunity provisions in the contract itself or by cross-referencing a policy provided to the employee outlining these provisions.

In order to reap the benefits of the full array of remedies available under the DTSA, companies should be sure to add the required notice language to all new contracts, agreements and policies that concern trade secrets and confidential information.  Depending on the circumstances, businesses might also consider whether it makes sense to amend current agreements to add the DTSA notice.