Employment Alert: "Federal Protection of Trade Secrets - the Defend Trade Secrets Act of 2016"

Publication
10.12.2016

Earlier this year, Congress passed the Defend Trade Secrets Act ("DTSA"), a comprehensive amendment of existing legislation that previously addressed economic espionage and now provides for a private federal civil cause of action for theft of trade secrets.  The DTSA's jurisdiction extends to any trade secrets "used in, or intended for use in, interstate or foreign commerce," giving the new statute wide reach.  The Wall Street Journal reported that the DTSA "may be the 'most significant' expansion of federal IP law in 70 years."

DTSA Remedies

The decision whether to use state or federal law (or both) in prosecuting a trade secrets claim will be based on many factors, but some of the features of the DTSA worth considering are the following:

  • Like Texas law, the DTSA requires a verified complaint.  However, the federal statute authorizes pretrial seizure of "property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action."  Moreover, in "extraordinary circumstances," such a seizure order may be obtained ex parte.
  • Like the Texas Uniform Trade Secrets Act, the DTSA expressly authorizes a court to grant injunctive relief not only to prevent actual but also threatened misappropriation.
  • The DTSA expressly authorizes a court to enter an injunction that requires affirmative actions to be taken to protect trade secrets.
  • The DTSA expressly provides that, where an injunction is an "inequitable" remedy, the court may condition future use of the trade secret by the defendant on payment of a reasonable royalty for a period of time.
  • Courts are authorized under the DTSA to award actual damages, additional damages for unjust enrichment and, in cases of willful and malicious misappropriation, exemplary damages up two times the amount of monetary damages otherwise awarded.
  • The court may award attorneys' fees to the prevailing party in three circumstances: (1) if a claim of misappropriation is made in bad faith; (2) if a motion to terminate an injunction is made or opposed in bad faith; or (3) if the trade secret was willfully and maliciously misappropriated.

Important notice provisions of DTSA

The DTSA requires notice to an employee, in any agreement between the employer and employee governing use of trade secrets or other confidential information, in order for the employer to be entitled to an award of exemplary damages or attorneys' fees.  This provision applies to all contracts and agreements entered into or updated after May 11, 2016.  Therefore, employers must take care to add the required notice, describing the statutory circumstances under which possession and disclosure of a company's trade secrets will not subject the party disclosing them to liability for the disclosure.  These circumstances include certain limited disclosures made to report or investigate a suspected violation of law and certain disclosures in retaliation lawsuits arising out of such a report.

Conclusion

Employee theft of trade secrets is undeniably on the rise.  The DTSA represents another remedy for this theft.  While the real test of the DTSA's strength will come as the case law develops, the DTSA shows every promise of being a powerful statutory addition to an employer's arsenal of remedies for theft of trade secrets.

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