Understanding the new Defend Trade Secrets Act

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”). The DTSA is designed to take effect immediately. The text of the DTSA is available here.

What is the DTSA?

The DTSA is a new federal law designed to curtail unfair competition by creating a civil cause of action for misappropriation of trade secrets. Legal commentators have described the law as the most significant expansion of federal intellectual property law in over fifty years. The statute’s core provision provides that: “An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to product or service used in, or intended for use in, interstate or foreign commerce.”

What does the DTSA mean for employers?

  • Access to federal court. Prior to the enactment of the DTSA, there existed no federal civil cause of action for trade secret theft. As a result, a patchwork of state law governed misappropriation litigation. While the general acceptance and adoption by states of the Uniform Trade Secrets Act resulted in some uniformity, differences in state trade secret misappropriation law of significant consequence remain. The DTSA does not preempt this state law; its enactment is instead expected to result in the development of a body of uniform federal trade secrets misappropriation law that complements existing state law.
  • Access to new civil seizure remedy. The most significant difference between the DTSA and existing state trade secret misappropriation law is that, under the DTSA, a court can impose an ex parte civil seizure of property. Upon a showing of “extraordinary circumstances,” a federal court may issue an order seizing such property as is “necessary to prevent the propagation or dissemination of the trade secret.”
  • No adoption of inevitable disclosure doctrine. Under the inevitable disclosure doctrine, a plaintiff may prove misappropriation of trade secrets by establishing that a former employee’s new employment is such that he or she will inevitably rely on or use the plaintiff’s trade secrets. Many states have rejected this doctrine. The DTSA is designed to ensure that the doctrine is not introduced in states that have rejected it. The statute forbids injunctions that “conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business” or that limit employment based “merely on the information the person knows.”
  • New notice to employees required. The DTSA includes a whistleblower protection provision that provides immunity for disclosure of trade secrets: (a) to government officials or an attorney solely for the purpose of reporting or otherwise investigating a suspected violation of law, or (b) in a complaint or other document filed under seal in a lawsuit or other proceeding. Employers must give notice of this immunity from criminal and civil liability in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Employers who fail to comply with this requirement cannot recover punitive damages or attorneys’ fees that may be available in an action against the employee under the DTSA.

What should employers do now?

Employee misappropriation of confidential and trade secret information poses a growing threat to employer investment in innovation and competitive market position. The DTSA is a new tool that employers may use to access federal courts to manage and eliminate employee misappropriation of trade secrets. In light of its recent enactment, we recommend that employers consider the following actions:

  • Review existing policies regarding confidential and trade secret information and existing employee confidentiality agreements to ensure compliance with the DTSA’s new employee notice requirement.
  • Recognize that the DTSA does not lessen the burden of establishing the existence of a protectable trade secret. In this regard, the most important action that an employer can take is to identify its trade secret information and to take reasonable measures to keep the information secret. Such measures may include implementing policies restricting the use and disclosure of confidential and trade secret information, requiring employees to sign confidentiality agreements, marking trade secret information as “confidential,” and restricting access to confidential and trade secret information.