President Signs the Defend Trade Secrets Act of 2016

On May 11, 2016, President Obama signed into law the “Defend Trade Secrets Act of 2016” (DTSA) which was passed by Congress on April 27, 2016. DTSA creates a private cause of action for misappropriation of trade secrets that can be brought in federal courts and provides for injunctive relief and civil liability. At the signing ceremony, President Obama stated, “We come up with new services, new goods, new products, new technologies. Unfortunately, all too often, some of our competitors, instead of competing with us fairly, are trying to steal these trade secrets from American companies, and that means a loss of American jobs, a loss of American markets, a loss of American leadership.”

DTSA, as amended, 18 U.S.C. § 1836(b) states:  “An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” Misappropriation does not include reverse engineering, independent derivation, or any other lawful means of acquisition. DTSA amends the Economic Espionage Act of 1996. Unlike that statute, which provided criminal penalties only, DTSA creates a civil cause of action for misappropriation of trade secrets. Injunctive relief allows the federal court to prevent actual or threatened misappropriation and provides for compensatory damages for either the actual loss caused by misappropriation of the trade secret and any unjust enrichment or a reasonable royalty for the use of the trade secret. Liquidated damages and attorney fees can be awarded in the case of bad faith or willful misappropriation.

Previously, trade secret law was primarily decided by each state under Uniform Trade Secrets Act, with variations from state to state. DTSA does not preempt state laws and leaves all state trade secret laws in place and while creating an additional federal remedy. DTSA is hoped to provide the uniformity intended by, but not achieved through the UTSA. The law provides that a court may not order injunctive relief preventing “a person from entering into an employment relationship” and further provides that the law will not conflict with applicable state laws regarding “restraints on the practice of a lawful profession, trade, or business.” Additionally, any condition that a court places on employment “shall be based on evidence of threatened misappropriation and not merely on the information the person knows.”

Significantly, DTSA provides an ex parte proceeding to allow seizure of any property “necessary to prevent the propagation or dissemination of the trade secret that is subject to the action.” This provision is only to be used only in extraordinary circumstances, and any seizure order must be narrowly drafted to avoid interrupting the legitimate business operations of the accused, and only when other forms of equitable relief are inadequate. The party seeking an ex parte seizure order must post security and is subject to a claim for any damage caused by a wrongful seizure. DTSA also provides that the court shall take the appropriate measures to protect the confidentiality of seized materials that are unrelated to the trade secret information ordered seized unless the person against whom the order is entered consents to disclosure of the material.

DTSA also includes a whistleblower provision providing immunity for employees from any criminal or civil liability under any federal or state trade secret law for disclosure of a trade secret that is made in confidence to an attorney or federal, state, or local governmental official solely for the purpose of reporting or investigating a suspected violation of law. The law requires that employers provide notice of this immunity “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The term “employee” includes contractors or consultants performing work for an employer. If an employer fails to comply with the notice requirement, it may not recover exemplary damages or attorney’s fees in an action against the employee who was not provided notice. The notice requirement will apply to contracts and agreements entered into or updated after the enactment of the DTSA. DTSA became effective on the date of its enactment, applies to any misappropriation that occurs after that date and provides for a three year statute of limitations. As such, employers should update relevant policies and agreements in compliance with the law.

Joette S. Doran has her law practice in Hoffman Estates. She concentrates in employment law and handles employment law actions in state and federal administrative agencies and courts. She was a former Co-Chair of the NWSBA Employment Law Committee, is a Member of the Board of Governors and is the Chair of the Women’s Law Committee. For more information please visit her website at www.joettedoran.com.

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