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Defend Trade Secrets Act of 2016

By Rachel Steinhofer

In late April, the United States Congress passed the Defend Trade Secrets Act of 2016 (DTSA). The DTSA became effective on May 11, 2016, the date President Obama signed the Act into law, and applies to any trade secret misappropriation that occurs on or after that date. Under the new Act, companies will now be able to file civil claims in federal courts defending their trade secrets against misappropriation by others.

Prior to the DTSA's enactment, those with trade secret rights had to rely solely on state laws to protect their trade secrets, even though those laws could vary from state to state,. While earlier federal law criminalized certain trade secret misappropriations, it did not provide a private civil cause of action.

The new legislation is aimed at providing businesses with a more reliable and predictable way to protect their trade secrets. Under the DTSA, a trade secret owner will be able to file a civil action in a U.S. District Court seeking to enjoin trade secret misappropriation and for damages based on a uniformly applicable law which is more protective than some existing state laws. Damages that an owner can recover include:

  • (1)compensatory damages based on the actual loss caused by the misappropriation;
  • (2)compensatory damages based on any unjust enrichment caused by the misappropriation;
  • (3)in lieu of damages measured by other methods, a reasonable royalty for the misappropriator's unauthorized disclosure or use of the trade secret; and
  • (4)if the court finds willful and malicious misappropriation, enhanced damages up to twice the damages award as well as an award of attorney's fees.

Trade secret issues can often arise in litigation to enforce a non-compete, where an employee with knowledge of or access to trade secret information leaves and joins a competitor or starts his own competing business. While the DTSA would be applicable to the trade secret, it does not impact the state law applicable to the non-compete agreement and does not create a non-compete agreement where one did not previously exist.

Under the DTSA, a court may issue an injunction to prevent any actual or threatened misappropriation of trade secrets. But the injunction cannot "prevent a person from entering into an employment relationship." Conditions on a person's employment can be part of any injunctive relief under the DTSA, but only if there is evidence of threatened misappropriation; by itself, the mere fact that a person knows trade secret information is not sufficient. What conditions are permissible will likely vary from jurisdiction to jurisdiction based on any applicable state laws governing the "restraints on the practice of a lawful profession, trade or business."

The DTSA includes an immunity provision to protect individuals who reveal trade secrets to government officials or attorneys for the purposes "of reporting or investigating a suspected violation of law." Employers are required to provide notice of this immunity "in any contract or agreement with an employee that governs the use of a trade secret or other confidential information." This notification requirement applies to all contracts or agreements entered into or updated after the date of enactment of the DTSA, May 11, 2016.

The DTSA also includes an ex parte civil seizure provision allowing courts to seize property where "necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action." The Act specifically directs this remedy to be issued "only in extraordinary circumstances" and seizure can only occur where a court is presented specific facts from which it clearly appears such extraordinary relief is warranted. The Act includes various protections for the person or entity from which property is seized, including that the party seeking seizure post adequate security against damages.

For questions on how the DTSA could impact your business or employment policies, contact a member of Barrett McNagny's Employment Group. For questions about protecting your trade secrets or other intellectual property contact Jeremy Gayed of Barrett McNagny's Intellectual Property Law Group.  

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