Defend Trade Secrets Act Explained

Monday, July 11th, 2016 @ 10:53AM

Does your work involve trade secrets? If it does—or even if you’re not sure—there’s some new legislation that you should know about: the Defend Trade Secrets Act (“DTSA”), which was recently signed into law by President Obama. Here’s some information about the act and how it may affect you.

What is a trade secret?

Like copyrights, patents, and trademarks, trade secrets are a type of intellectual property. A trade secret is information (often in the form of a formula, process, pattern, or the like) that is not generally known or reasonably ascertainable by others and which gives a business an economic advantage over its competitors. An example of a trade secret is the formula for Coca Cola. The formula is closely guarded and gives Coke a business advantage over other soda makers who do not have it.

What does the DTSA do, and why does it matter?

Most intellectual property is governed by federal law, with trademarks being an exception to the general rule. These may also be governed by state law and common law, and trademark-based lawsuits often claim federal-, state-, and common-law based causes of action.

Unlike other intellectual property, trade secrets had been solely state-law causes of action until now. Without federal law governing trade secrets, plaintiffs’ claims for misappropriation were matters for state court, and remedies were dictated by state law. The DTSA now allows plaintiffs to bring trade secrets claims in federal court so long as these secrets are used in interstate commerce. In other words, plaintiffs now have the option to select the forum for their lawsuit. Because many people prefer to litigate in federal court than in state court, this is a big deal.

The Act also creates a uniform scheme nationwide for dealing with misappropriation, providing remedies and responsibilities that will apply to all litigants across the board. Finally, as with trademarks, one can sue under federal law, state law, and common law. The DTSA does not limit a plaintiff’s recovery under state law or at common law.

Does the DTSA provide any new remedies for the misappropriation of trade secrets?

The law allows for ex parte injunctions to issue in certain, very limited circumstances. This means that a court could seize the trade secret, or order a party to stop using it, without a hearing beforehand. This is in addition to whatever other remedies are available.

However, parties should carefully consult with their attorney to consider whether an injunction is an appropriate measure to seek. If one is granted and later found wrongful or excessive, the DTSA gives the latter a cause of action against the party seeking the injunction.

For employers, exemplary damages and attorneys’ fees are available in a trade secret suit where the employer has provided notice of immunity in agreements or contracts entered into or updated after May 12, 2016 with employees, contractors or consultants. All new agreements (entered into after May 12, 2016), as well as any amendments or other “updates” to preexisting agreements, should include an appropriate disclosure identifying the immunity provisions of the DTSA if the contract relates to trade secrets and/or other confidential information.

Does the DTSA protect whistleblowers?

To encourage compliance with the law, numerous federal acts (as well as state acts, as applicable) provide whistleblowers with civil and criminal immunity. The DTSA is one such law. Whistleblowers may confidentially share trade secrets with their attorney or the government so long as they do so because they suspect a violation of the law. They may also file trade secrets under seal in court documents for the same reason. In the event that an employer retaliates against a whistleblower, the whistleblower can use the trade secret in an anti-retaliation lawsuit, so long as its confidentiality is maintained.

Some employers require their employees to be subject to a contract governing the use of trade secrets or confidential information. These employers must alert their employees about the immunity provision of the DTSA, either within the contract itself or by referring to a different company document which explains this aspect of the law. If an employer does not include the immunity provision, they will not be able to collect exemplary damages or attorneys’ fees in the event of litigation.

How do I find out more about trade secrets and the DTSA?

While the above is general information rather than legal advice, we regularly work on cases involving the misappropriation of trade secrets. If you’d like to discuss a legal matter pertaining to trade secrets or need to speak to an attorney about updating your employment agreement/confidentiality agreements, contact our firm today via phone or website form.

ORIGINAL PUBLICATION OF THIS ARTICLE CAN BE FOUND ON OUR DEDICATED BLOG: https://lomnitzerlaw.wordpress.com/

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