Defend Trade Secrets Act Brings Employers New Protections, New Responsibilities

“There are only two categories of companies affected by trade-secret theft: those that know they’ve been compromised and those that don’t know yet.” – Eric Holder, former U.S. Attorney General

In May, President Obama signed the Defend Trade Secrets Act (the “DTSA”). The DTSA creates a federal uniform standard, permitting employers to bring a private, civil action in federal court to safeguard against an employee’s or an independent contractor’s trade secret misappropriation and to seek enhanced “double” damages and attorney’s fees and costs. But, employers may only avail all of these new protections if they have notified employees and independent contractors of their rights as whistleblowers to disclose trade secrets in certain situations.

Therefore, employers should act now to update all employee materials, including employee handbooks, associated policies, and employee and independent contractor agreements, to fully comply with notification requirements.

Employers & New Protections

The DTSA, which is actually an amendment to the Economic Espionage Act of 1996, is modeled after the Uniform Trade Secrets Act, and does the following:

  • Creates a federal, uniform jurisdiction and standard for trade secrets and trade secret misappropriation, rather than having state to state jurisdiction and differing state standards; though, the DTSA does not preempt state laws;
  • Defines what a federal “trade secret” is broadly, defines “trade secret misappropriation” and “improper means,” and expands the definition of “employees” to include “employees” “contractors” and “consultants”;
  • Authorizes employers to bring a private, civil action in federal court against employees and independent contractors for the misappropriation of a trade secret within 3 years of when the misappropriation was discovered or should have been discovered, creating an alternative venue aside from state courts;
  • Prohibits the federal court from requiring employers who bring a private, civil action against an employee or independent contractor from disclosing asserted trade secrets in discovery, without providing the employer an opportunity to explain under seal why the trade secret qualifies for protection and should be held confidential;
  • Provides employers a pathway to seize ex parte an employee’s or independent contractor’s property “to prevent the propagation and dissemination of the trade secret”;
  • Provides employers a pathway to seek injunctive relief against the employee or independent contractor;
  • Allows employers to seek monetary damages for the employer’s economic harm and the employee’s or independent contractor’s unjust enrichment;
  • Allows employers to seek exemplary “double” damages if the employee’s or independent contractor’s trade secret misappropriation was willful, up to two times the employer’s economic harm plus the employee’s or independent contractor’s unjust enrichment;
  • Allows an employer who prevails to seek attorneys’ fees and costs.

Employers Must Act Now to Avail New Protections

Although the DTSA always permits employers to bring a private, civil action in federal court, it requires that employers first notify employees and independent contractors of their rights as whistleblowers to disclose trade secrets, and to be immune from civil and criminal prosecution in doing so, to avail exemplary “double” damages and an award of attorneys’ fees and costs.

To this end, employers must notify employees and independent contractors that they are immune under both federal and state law from civil or criminal prosecution for the disclosure of a trade secret made either:

  • Confidentially to a federal, state, or local government official, or to an attorney, either directly or indirectly, solely for the purpose of reporting or investigating a suspected violation of law; or
  • In a related complaint or other court document, or to an attorney, filed in a lawsuit or other preceding when the filing is made under seal; or
  • In a complaint or other court document, or to an attorney, in a lawsuit filed against the employer for retaliation for reporting a suspected violation of law, if filed under seal.

Contact us to learn more about how to protect your company’s trade secrets.