Recently, Congress enacted, and President Obama signed, the Defend Trade Secrets Act of 2016 (“DTSA”), the first comprehensive federal trade secrets legislation. This landmark legislation provides a federal civil remedy for the misappropriation of trade secrets, thereby allowing trade secret owners to protect their innovations and seek redress in federal court—as owners of copyrights, patents and trademarks have already been able to—when violations of their rights occur.
Unlike other types of intellectual property, trade secrets have primarily been defined and protected exclusively under state law. Nearly all states—with New York being a notable exception—have adopted variations of the Uniform Trade Secrets Act (“UTSA”). Even seemingly small differences in state laws, however, can drastically affect the outcome of civil enforcement proceedings in state courts, making it difficult for firms operating interstate to implement comprehensive internal programs to protect their trade secrets.
Furthermore, because trade secret theft involves the movement of secrets across state lines and beyond, it is increasingly difficult for state courts to efficiently and effectively respond. Trade secret cases often require swift action to preserve evidence and prevent movement of the secret beyond the reach of United States law, and, as Congress has recognized, in a national and global economy, state laws and courts are simply not up to the challenge. Rather, a uniform federal law and access to federal courts are needed to address these concerns.
Federal protection of trade secrets, however, was previously limited to provisions of the Economic Espionage Act of 1996 (“EEA”) that make it a federal crime to misappropriate a trade secret having an interstate or foreign nexus. The EEA does not, however, give trade secret owners a private civil right of action in federal court, and, although federal law enforcement has made the fight against economic espionage and trade secret theft a priority, limited government resources have proven insufficient in thwarting a growing problem.
The DTSA now provides a federal civil remedy for the misappropriation of trade secrets. Borrowing largely from the UTSA, the DTSA defines misappropriation as acquisition of a trade secret by improper means, disclosure or use of a trade secret by a person who had reason to know that the trade secret was acquired by improper means or under circumstances giving rise to a duty of secrecy, or disclosure or use of a trade secret by a person who had reason to know it was disclosed by accident or mistake.
The DTSA defines the “improper means” underlying a trade secret’s misappropriation to include breach, or inducement of a breach, of a duty to maintain secrecy; theft; bribery; misrepresentation; or espionage through electronic or other means. The DTSA clarifies, however, that improper means “does not include reverse engineering, independent derivation, or any other lawful means of acquisition.”
The DTSA provides for traditional equitable remedies and the award of damages and double damages in cases of willful and malicious misappropriation. In addition, the DTSA authorizes expedited ex parte seizure of misappropriated property under extraordinary circumstances where necessary to preserve evidence or prevent dissemination of a trade secret before it progresses and the trade secret is lost. The DTSA also has a 3-year statute of limitations, and the legislation does not preempt state laws, but rather, offers a complementary federal remedy.
Finally, the DTSA provides whistleblowers with immunity against claims when they disclose trade secrets to the government or an attorney to report wrongdoing, and it immunizes the confidential disclosure of a trade secret in a lawsuit, including an anti-retaliation proceeding. The DTSA requires that notice of this immunity be set forth in any employment contract that governs the use of trade secrets, although an employer may choose to provide such notice by reference to a policy document setting forth the employer’s reporting policy for a suspected violation of the law that provides notice of the immunity. An employer may not be awarded exemplary damages or attorney’s fees under the DTSA against an employee to whom such notice was not provided. The notice requirements apply to contracts entered into or updated after passage of the law. Employers should be careful to update any policies, handbooks or employment agreements that govern employees’ access to or use of trade secrets or “other confidential information” to provide notice of the immunities for whistleblowing and anti-retaliation suits.
Compliments of Reavis Parent Lehrer LLP – a member of the EACCNY