A new federal law, called the “Defend Trade Secrets Act” (DTSA), was passed on May 11, 2016. Now, for the first time, trade secret owners can bring civil actions in federal courts for misappropriation of any trade secret that is “related to a product or service used in, or intended for use in, interstate or foreign commerce.” This new law will provide additional remedies to trade secrets owners and will require employers to revise their existing confidentiality/trade secrets agreements.
The DTSA broadly defines “trade secrets” to include virtually any information that is subject to reasonable efforts by its owner to keep it secret provided that such information derives “independent economic value” from not being known to the general public. This definition is in line with the California state law definition of a “trade secret” and is much broader than the definition under the Uniform Trade Secrets Act (which is used by many states).
The DTSA specifically defines “misappropriation” to include (a) obtaining a trade secret through improper means, or (b) using or disclosing a trade secret that was obtained through improper means.
A plaintiff who successfully proves that its “trade secret” has been “misappropriated” is entitled under the DTSA to compensatory damages, exemplary damages (i.e., punitive damages), and attorneys’ fees.
The DTSA allows a trade secret owner, who has filed a lawsuit in federal court for misappropriation, to obtain a Court order seizing the trade secret.
The DTSA omits any requirement that a trade secrets owner describe its trade secrets with “particularity” in any action. California currently requires this, as do many other states.
The DTSA prohibits injunctive relief based on the “inevitable disclosure doctrine.” This is consistent with California law.
The DTSA also protects whistle-blowers. It provides immunity for whistle-blowers who divulge trade secrets “for the purpose or reporting or investing a suspected violation of law.” This immunity provision is especially relevant to employers because now, as a result of the new law, employers are required to provide all employees with notice of this immunity in any written agreement that “governs the use of a trade secret or other confidential information.” An employer who fails to provide notice of this whistle-blower protection to an employee cannot obtain exemplary damages or attorneys’ fees against that employee for misappropriation.
Consequently, all employers should review their existing confidentiality and non-disclosure agreements to ensure that they provide the notice required by this new federal law. Specifically all agreements should include the following language (or cross-reference an employee handbook or other policy document that contains this language):
(1) An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
(2) 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 (A) files any document containing the trade secret under seal and (B) does not disclose the trade secret, except pursuant to court order.
Finally, the DTSA does not preempt state law. So trade secret owners are free to sue for misappropriation in state court (under their own state’s trade secrets law) or in federal court (under the DTSA).
You can read the full text of the DTSA here.
