Client Bulletin: The Defend Trade Secrets Act

By: Catherine Guttman-McCabe

What is the Defend Trade Secrets Act?

The Defend Trade Secrets Act of 2016 (DTSA), effective May 11, 2016, makes trade secret theft a federal crime and provides employers with powerful protection for trade secret misappropriation by creating a new federal cause of action. However, employers must take certain steps to fully avail themselves of the Act’s remedies. The DTSA supplements, but does not preempt, state law.

What Remedies Does the DTSA Provide?

The DTSA authorizes a trade secret owner to file a civil action in federal district court seeking relief for trade secret misappropriation related to a product or service used or intended for use in interstate or foreign commerce. A trade secret is business or scientific information that: (1) derives independent economic value from not being generally known to or readily accessible by the public through proper means; and (2) the owner has taken reasonable measures to keep secret. Information can be confidential without being a trade secret.

The DTSA authorizes the following remedies:

  • An injunction to preserve evidence and prevent trade secret disclosure, as long as it does not conflict with state law or prevent a person from entering into an employment relationship;
  • Ex parte seizure orders under limited circumstances when an injunction would be inadequate;
  • Compensatory damages measured by (a) actual loss and unjust enrichment or (b) a reasonable royalty for the unauthorized disclosure or use of the trade secret;
  • Exemplary damages up to two times the amount of damages for willful or malicious misappropriation;
  • Attorneys’ fees for the prevailing party if the trade secret was willfully and maliciously misappropriated; the misappropriation claim was made in bad faith; or a motion to terminate an injunction was made or opposed in bad faith.

What Steps Must an Employer Take to Maximize Protection Under the DTSA?

Importantly, the DTSA provides criminal and civil “whistleblower” immunity under federal and state law for employees, including consultants and contractors. Employers must notify individuals about DTSA whistleblower immunity in any contract regarding the use of trade secrets or confidential information entered into or modified after the effective date of the DTSA. An employer may comply with this requirement by cross-referencing a policy document that contains the employer’s reporting policy for a suspected violation of law (such as the employer’s whistleblower policy). Employers that fail to provide notice forfeit their right to recover exemplary damages and attorneys’ fees.

What Should Employers Do Now?

Employers should review any new or updated agreements with employees, consultants, and independent contractors that contain confidentiality provisions and ensure that the provisions do not discourage or prevent the individual from reporting violations of law. These agreements may include:

  • Employment agreements;
  • Independent contractor agreements;
  • Separation, severance, and release of claims agreements;
  • Confidentiality, proprietary rights, non-compete and non-solicitation agreements.

To preserve the potential recovery of exemplary damages and attorneys’ fees under the DTSA, employers should add language to their agreements or a cross-reference to a whistleblower policy that complies with the following statutory disclosure requirement:

‘‘IMMUNITY  FROM  LIABILITY FOR  CONFIDENTIAL  DISCLOSURE OF A  TRADE  SECRET TO THE  GOVERNMENT OR IN A  COURT  FILING . 

(1) IMMUNITY .—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) USE OF TRADE SECRET INFORMATION IN ANTI -RETALIATION LAWSUIT .—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.”

The following sample language can be used to cross-reference a policy in the agreement:  “Notwithstanding any provisions of this Agreement, you may be entitled to immunity under the Defend Trade Secrets Act of 2016 for disclosing a trade secret under certain limited circumstances, as set forth in the [NAME OF EMPLOYER’S WHISTLEBLOWER POLICY].”

We are available to answer questions, assist in conforming your policies and agreements to the DTSA, and advise regarding the protection of trade secrets. 

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This Bulletin is not intended as legal advice.  Readers should seek professional legal counseling before acting on the information it contains.