Lora M. Jennings, Attorney

On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”), which was approved with bipartisan support by the Senate and a 410-2 vote by the House. Intended to give another layer of protection to companies that hold valuable trade secrets, it creates a federal cause of action for misappropriation of trade secrets and provides immunity for employees in certain cases.  

A new civil action

The DTSA ventures into an area of the law previously left solely up to the states by creating a federal cause of action, giving federal courts jurisdiction over trade secret disputes. (A plaintiff still has the option of pursuing trade secret misappropriation claims in state court.) If a plaintiff proves a violation of the DTSA, the new law offers several remedies, including injunctive relief for actual or threatened misappropriation, the payment of a reasonable royalty, or the award of actual damages.  Exemplary damages are available if the trade secret is willfully and maliciously misappropriated. 

In the most talked-about aspect of the Act, the court can now issue an ex-parte order for the seizure of property necessary to prevent dissemination of the trade secret. This remedy, however, can only be ordered after several very specific and detailed findings by the court related to the circumstances of the alleged trade secret and its misappropriation.

Review and revise

The DTSA provides criminal and civil immunity to individuals who disclose trade secrets to the government for reporting or investigating a suspected violation of the law.  The Act requires employers to provide notice of the immunity protections under the DTSA “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The Act defines “employee” to include any individual performing work as a contractor or consultant.  The notice requirement applies to contacts and agreements that are entered into or updated after the DTSA is enacted.  

An employer is considered to be in compliance with the notice requirements if it provides a “cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.”  If appropriate notice is not provided, the employer may not recover punitive damages or attorneys’ fees when pursuing an employee for trade secret misappropriation.  

The DTSA does not specify what the notice must state, so businesses are well-advised to confer with counsel to determine which employment, contractor or other confidentiality and non-disclosure agreements should be modified, and to decide how the notice provisions will be communicated to employees.