On May 11, 2016, President Obama signed the Defend Trade Secrets Act ("DTSA") into law. The bill, which was passed with bipartisan support of Congress, amends the Economic Espionage Act ("EEA") and creates a private civil cause of action for trade secret misappropriation available to employers wishing to protect their trade secrets.
Background
The EEA previously only provided criminal penalties for misappropriation of trade secrets. Civil claims had to be brought in state courts under various, state-enacted versions of the Uniform Trade Secrets Act ("UTSA"). Consequently, trade secret laws varied from state to state and sometimes even within courts, creating uncertainty for employers seeking injunctive relief and other damages for the misappropriation of trade secrets.
Now the DTSA's new civil cause of action grants an additional layer of protection and certainty for employers wishing to bring civil trade secret claims in federal courts. The DTSA specifically provides "[a]n owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce." Generally, the DTSA is not intended to preempt any state law trade secret causes of action but merely create an additional federal remedy.
In addition to creating a federal, civil cause of action, the new law also includes a seizure provision and creates new protections for whistleblowers and notice obligations for employers.
Ex Parte Seizure Provision
The DTSA provides an ex parte seizure mechanism available to a trade secret owner in order to preemptively prevent wrongful dissemination of a trade secret. This seizure mechanism was not a remedy available to plaintiffs under any state trade secret law.
The seizure provision will allow plaintiffs to request the preliminary seizure of all “property necessary to prevent the propagation or dissemination of the trade secret" without advance notice to the defendant. The provision is intended to only be used in extraordinary circumstances and as such, plaintiffs seeking an ex parte seizure must first succeed in showing the court that injunctive relief is not a viable, alternative remedy.
Employers seeking to utilize the seizure mechanism should be aware that the DTSA also contains a "wrongful or excessive" seizure provision that would likely impose penalties in some circumstances. As the new seizure provision has yet to be tested in the courts, the extent of the protections and liabilities that may attach to the provision remain undefined.
Whistleblower Protection and Notice Requirements
The DTSA amendment implements a whistleblower mechanism for individuals to disclose trade secret information to the government or in a court filing without creating liability under the statute. As discussed above, the DTSA does not preempt other trade secret laws. However, the one exception added by the DTSA is that the whistleblower immunity provisions preempts state law actions as well.
The provision also outlines a notice provision that employers should provide employees and contractors regarding immunity from civil and criminal prosecution for disclosure of trade secrets during the course of certain whistleblower activity. Employers are required to notify, in writing, all employees and contractors of their right to immunity, as set forth in the statute. Employers who fail to provide the notice to employees, who later find themselves in a trade secret infringement action, will be prohibited from receiving enhanced damages or attorney fees, even if successful in the suit.
What This Means for Employers
The DTSA is a significant advance in the field of trade secret protection on a national level. In light of the new law, employers who are interested in benefitting from the enhanced trade secret protections may wish to reevaluate their policies and procedures regarding trade secrets generally. Consistent with the requirements under the UTSA, the DTSA still requires that employers take measures to identify and protect their trade secrets.
In order to protect trade secrets, it is advisable that employers take proactive steps, such as implementing password and use restrictions, marking information as "confidential" and conducting routine trainings on confidentiality.
Additionally, employers should consider reviewing and revising any employment, confidentiality and non-disclosure agreements to ensure that such agreements contain express notice provisions as required by DTSA, to avoid losing the ability to recover exemplary damages and attorney's fees in future trade secret actions.
Questions
If you have any questions concerning this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.
David Tyra
dtyra@kmtg.com | 916.321.4594