Before May 11, 2016, only three out of four forms of intellectual property – patents, trademarks and copyrights – were protectable and enforceable at the federal level. The Defend Trade Secrets Act of 2016 (DTSA) now provides federal protection for – you guessed it – trade secrets. Prior to the DTSA, trade secrets were enforced at the state level, generally under the Uniform Trade Secrets Act (UTSA), adopted in 48 states. Although uniformity might be expected when the name of the act includes the very word, enforcing trade secrets was previously inconsistent and unpredictable, owing to the various state interpretations of the UTSA, making it difficult to enforce trade secrets harmoniously across state lines.
The federal DTSA does not supplant and preempt the state-adopted UTSA. Instead, it mirrors the current UTSA, and provides an additional layer of federal protection, allowing trade secret owners to pursue federal civil remedies in addition to state remedies. Federal civil remedies will likely offer more uniform relief to trade secret owners. In terms of remedies, the DTSA offers injunctive relief (court order requiring infringer to stop a specific act or behavior) to prevent any actual or threatened misappropriation of a trade secret. If a party does suffer actual loss or unjust enrichment, it can recover compensatory damages (a monetary award for damages and losses incurred by trade secret owner). And if the misappropriation was particularly naughty (the legal definition of naughty in this case is “willful and malicious”), the injured party may seek exemplary damages in an amount up to double the amount of compensatory damages awarded. Finally, the DTSA allows for the recovery of attorney’s fees when exemplary damages are awarded, and in some other instances.
The DTSA creates a new tool for trade secret owners to use in extraordinary circumstances, known as ex parte seizures. If the trade secret owner can satisfy certain requirements, a federal court can grant a petition to seize the trade secret information to prevent its dissemination. To show extraordinary circumstances, a trade secret owner must show:
- That other types or relief or remedies would be inadequate;
- Immediate and irreparable harm as a result of dissemination of the trade secret information;
- That the potential harm to the owner is more that than the harm to the potential infringer or a third party;
- A likelihood of success in showing that the information was improperly obtained by the potential infringer; and
- That the potential infringer actually has possession of the trade secret information.
Under the DTSA, disclosures of trade secrets are permitted in certain circumstances. If someone acting as a whistle-blower discloses a trade secret to a federal, state, or government official for the purpose of reporting a violation or to comply with an on-going investigation, that individual is granted civil and criminal immunity. In order to avail themselves of exemplary damages or attorney’s fees, employers must provide notice of this whistleblower immunity in new or modified employment contracts and in any other agreement that governs the use of trade secret or confidential information.
Parties have already started claiming trade secret violations under the DTSA in courts around the country – it will be interesting to see how case law under this new act develops. However, there’s no reason to wait to be sued – some proactive steps that businesses and employers can take to remain compliant include:
- Using a standard notification clause that meets the DTSA notice requirements, in both new and updated non-compete, non-disclosure, and other employment agreements, and all internal policy documents;
- Seeking counsel to determine whether a state or federal remedy (or both) is best suited to the type of trade secret injury faced;
- Protecting trade secrets, especially from unintended employee disclosures. Password-protect confidential documents and create an internal policy to educate employees on the importance of trade secrets in your business.