President Obama signed the Defend Trade Secrets Act of 2016 (DTSA) on May 11, 2016 after the bill received strong bipartisan support in Congress. Although most states have already passed trade secret misappropriation laws, the DTSA creates several new avenues to protect a trade secret in the federal courts. The following is an overview of the bill’s most important features.
The act creates a new private cause of action under federal law for misappropriation of a trade secret. Trade secret owners can now choose between a state and federal forum, since the DTSA expressly provides that it does not preempt any state trade secret laws related to trade secret misappropriation. And like many state laws, the DTSA is modeled after the Uniform Trade Secrets Act, so there are many substantive similarities between existing state laws and the DTSA. The DTSA does, however, differ in some significant respects from existing state laws.
For instance, the DTSA creates a preliminary seizure procedure for trade secret owners. Under this provision, a trade secret owner can ask a federal court to order the seizure of the misappropriated product or service on the same day the trade secret owner files suit. This seizure can mitigate the potential damage that could result if the trade secret is disseminated to the public or competing third parties. However, preliminary seizures will not be easy to obtain, and they come with some risks. The trade secret owner must demonstrate a variety of facts to the court, including showing that there is no other form of equitable relief to protect the trade secret (i.e., an injunction would be ineffective) and that the trade secret owner is likely to succeed on the merits of its misappropriation claim. The DTSA also allows the alleged misappropriator to file a counterclaim against the trade secret owner for wrongful seizure of the property. Thus, the preliminary seizure procedure should be utilized only in appropriate circumstances.
At least one feature of the act requires immediate action by trade secret owners. The DTSA includes a whistleblower exception that permits disclosure of the trade secret to a government official to report violations of the law. Trade secret owners cannot recover some damages and fees that are otherwise available under the act unless they provide notice of this whistleblower exception “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” This notice requirement applies to all contract or agreements executed after May 11, 2016, and the DTSA’s definition of employee includes contractors and consultants. We are available to assist with revising any agreements to ensure compliance with these new requirements and to ensure that trade secret owners maintain the ability to pursue all available damages and remedies.
As with many new laws, the full import of certain provisions will not be clear until federal courts interpret the specific language of the statute. Regardless, this recent change in the landscape of available trade secrets protections provides a good opportunity for businesses to review and reexamine their Confidentiality, Nondisclosure, and similar agreements.
For more information please contact a member of the Labor & Employment practice group.
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