Defend Trade Secrets Act of 2016 Provides Additional Protections for Employers Against Trade Secret Theft

The Defend Trade Secrets Act of 2016 (DTSA) (to be codified at 18 U.S.C. § 1836), a sweeping new federal law, became effective on May 11, 2016.

This new law provides federal jurisdiction over civil lawsuits to protect trade secrets. The DTSA allows a company that has had its trade secrets stolen to bring a civil suit for damages and injunctive relief in federal court. The company may also obtain an ex parte civil seizure to recover stolen trade secrets.

Before the DTSA, claims for theft of trade secrets had to be brought under state law. Only the U.S. Attorney General could suit for trade secret theft under federal law, and then could only obtain injunctive relief.

The DTSA seeks to create a uniform standard for trade secret theft and provide uniform discovery procedures.

The law defines a “trade secret” to include all forms and types of financial, business, scientific, technical, economic, or engineering information, if:

• The owner takes reasonable measures to keep such information secret; and
• The information derives independent economic value, actual or potential, from not being generally known to, and not being readily discoverable through proper means by, the public.

The theft of a trade secrets includes such “improper means” as theft, bribery, misrepresentation, breach of contract, or espionage. It does not include reverse engineering, independent derivation, or any other lawful means of acquisition.

Some other key provisions of the DTSA include:

• The law expands federal jurisdiction to create a private right of action in federal court for theft of trade secrets. This includes theft by an employee or independent contractor of the company.

• It allows recovery of:

o Actual damages,
o Restitution (including compensation for “unjust enrichment” caused by the taking that is not included in the actual loss),
o A “reasonable royalty,” where actual damages are difficult to calculate,
o Punitive damages (up to two times the award of actual damages), and
o Attorney’s fees (where a claim of trade secret theft was made in bad faith, or the trade secret was willfully and maliciously stolen).

• The DTSA allows the court to enter a preliminary or permanent to stop the taking or threatened taking of a trade secret. The injunction may also require a person to take affirmative measures to protect the trade secret, or (in extraordinary circumstances) allow future use of the trade secret only on payment of a reasonable royalty.

o However, the court may not grant injunctive relief if it would prevent a person from entering into an employment relationship. The court may only place conditions a person entering an employment relationship “based on evidence of threatened misappropriation and not merely on the information the person knows” (emphasis added). This language was added to bar companies from pursuing anti-competitive injunctions based on the idea that new employment will “inevitably” lead the employee to disclose the company’s trade secrets.

• The court may order law enforcement officers to seize property, in order recover trade secrets that have been stolen, without notice to the alleged wrongdoer beforehand. The order may only be issued if specific facts establish that:

o “An immediate and irreparable injury will occur if such seizure is not ordered,”
o The harm to the applicant of denying the application outweighs the harm to the legitimate interests of the alleged wrongdoer, and substantially outweighs the harm to any third parties who may be harmed by the seizure;
o The plaintiff will likely prevail on the merits of the claim of trade secret theft;
o The alleged wrongdoer, or persons acting in concert with him or her, would destroy, move, hide, or otherwise make the trade secret inaccessible if the court provided notice to him or her; and
o The applicant has not publicized the requested seizure.
• An immunity provision is included to protect individuals from criminal or civil liability for disclosing a trade secret in confidence to a government official or to an attorney for the purpose of reporting a violation of law. In addition, an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (1) files any document containing the trade secret under seal; and (2) does not disclose the trade secret, except pursuant to court order. The DTSA requires employers to provide employees notice of the new immunity provision in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Should an employer not provide the required notice, the employer may not recover punitive damages or attorney’s fees in an action brought under the DTSA against an employee who did not receive the notice. For purposes of the notice provision, the term ‘employee’ includes contractors and consultants.

• The statute of limitations is 3 years from the date on which the theft is discovered, or by the exercise of reasonable diligence should have been discovered.

Employers are encouraged to update their existing policies and agreements to meet the requirements of this new law. All employment and independent contractor agreements should have clear definitions of what constitutes a “trade secret,” and should refer to the DTSA and its broad enforcement provisions where appropriate. Employers should also conduct a review to identify what valuable information they have that might be protected as a trade secret, and make sure that proper procedures are in place for preserving the confidentiality of their trade secrets.

The experienced attorneys at Bailey & Ehrenberg PLLC handle claims of trade secret theft in litigation, and also provide counseling, review and training on issues related to trade secret protection. We can be contacted via www.becounsel.com or at 202-331-1331. This article is not intended to constitute legal advice and should not be relied upon for that purpose.


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