Publications

New Options for Defending Trade Secrets

Legal Update 2016, Vol 3

In this time of partisan politics, it is noteworthy that a significant piece of business legislation – the Defend Trade Secrets Act of 2016 (DTSA) – was passed by the House and Senate in April with near-unanimous support.

The DTSA went into effect on May 11, 2016 three years after the Obama administrationcame out in support of such legislation when then-Attorney General Eric Holder said of the new reality of corporate espionage: “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.”

So what exactly does the new law do for companies like the small business you own or manage that isn’t necessarily worried about international intrigue because you operate on a national, regional, or local level? In a nutshell, it can help you protect your company’s intellectual property with some powerful new tools. 

DTSA’s Impact on Your Company

The DTSA provides new tools for combating those who would disclose or use your “secret recipe,” customer information, or other proprietary information you have worked so hard to develop and safeguard. A lso, as patent and other protections are becoming increasingly more problematic and cost prohibitive – especially to small businesses – trade secret protections like those afforded by the DTSA are less complicated and increasingly more attractive for protecting effort and innovation more affordably. Specifically, the DTSA: 

  • Allows you to proceed in federal court.
  • Creates a private, civil cause of action for “trade secret” misappropriation related to a product or service “used in, or intended for use in, interstate or foreign commerce.”
  • Permits uniform enforcement for “trade secret” misappropriation, eliminating the need to rely on widely differing state laws and allowing claims to be brought within three years from when the misappropriation occurred or from the reasonable date by which you should have discovered it.
  • Defines “trade secret” broadly, to include customer lists and other business or financial information of value, as long as you take reasonable measures to protect such secret information. Significantly, “trade secrets” under the DTSA need not be novel, if the other requirements are met.
  • Does not preempt all non-contractual remedies, allowing you to pursue a federal DTSA claim even if you have a parallel state claim you’d like to bring, such as breach of confidentiality or fiduciary duty.

The DTSA also provides some potent new remedies for “trade secret” misappropriation, including the ability to obtain an immediate injunction and to recover money damages, attorney’s fees, and even criminal penalties.

Controversy Over Seizure Orders

The DTSA’s most controversial new remedy allows federal judges to enter ex parte seizure orders in cases of willful or malicious misappropriation, allowing seizure of the stolen trade secret and/or property necessary to prevent the dissemination of a stolen trade secret from the alleged misappropriator without notice or opportunity to be heard.

Obtaining a seizure order requires showing irreparable injury, as well as a likelihood of success in proving that the information misappropriated is a “trade secret,” and the person who misappropriated or conspired to misappropriate it did so “by improper means,” including theft and misrepresentation. These seizure orders are available only to address “extraordinary circumstances” and as of this writing none have been granted.

What Now

The DTSA puts federal trade secret protection on par with protections granted only to copyrighted, trademarked, and patented material. Employers should modify existing employment agreements to reflect the changes effected by the DTSA, and it is critical that they alert employees in new agreements that they may disclose “trade secrets” to a government official or attorney for the sole purpose of reporting a suspected violation of law. If your agreements do not include notice of this “whistleblower” immunity, you cannot recover attorney’s fees or be awarded punitive damages under the DTSA.

The time is now for you to consider your business’ trade secrets and, if appropriate, to update your contractual and other protections against breaches of confidentiality, disclosure of proprietary information that may qualify as trade secrets, and intellectual property ownership provisions.

Lauri Cleary chairs the firms Litigation practice and is president of the Bar Association of Montgomery County. Josh Schmand is a litigation attorney who works on complex business, corporate, and commercial disputes. For more on the Defend Trade Secrets Act, contact Lauri at (301) 657-0176 or lecleary@lerchearly.com.

This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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