The much anticipated Defend Trade Secrets Act (“DTSA”) was signed by President Obama on May 11, 2016. The DTSA establishes a federal private cause of action for trade secret misappropriation. The law does not supersede the current state law regime governing trade secrets and is in many respects similar to the laws of most states. However, there are several noteworthy differences in the scope of protections and mechanisms for enforcement.
Private Plaintiffs May Now Pursue a Claim for Trade Secret Misappropriation in the Federal Courts.
Prior to the new federal legislation, civil actions for trade secret misappropriation were governed exclusively by state law and in most states by some slightly modified version of the Uniform Trade Secrets Act. Although that model law has been adopted by 48 states, including Texas, the goals of uniformity were arguably never achieved. The state laws governing misappropriation of trade secrets will remain in effect. But, the hope is that the DTSA will encourage uniformity in much the same way that the Federal Lanham Act was designed to harmonize the law of trademarks and unfair competition.
Another impetus behind the DTSA was to provide a civil law complement to the Economic Espionage Act of 1996 (“EEA”) which imposes criminal liability for industrial espionage carried out for the benefit of both domestic and foreign corporations. Despite the increasing incidents of espionage over the past decade, cases brought under the EEA have been infrequent due to the lack of governmental resources for criminal prosecutions. As a consequence, lawmakers hope the DTSA will augment protections against acts of corporate espionage by affording private litigants, including corporations, a civil cause of action for injunctive relief and monetary damages.
The DTSA Allows for Seizure of Property Based on ex parte Application.
Among the differences between the new federal law and existing state law, perhaps the most controversial is the DTSA’s inclusion of a provision allowing the trade secret owner to seek ex parte “an order providing for the seizure of property necessary to prevent the propagation or dissemination” of trade secrets. This measure is expressly reserved for “extraordinary circumstances” and subject to enumerated requirements. As but one requirement, the applicant for ex parte seizure proceedings must show that an order enjoining disclosure of trade secrets would be inadequate “because the party to which the order would be issued would evade, avoid, or otherwise not comply” with the injunction. It remains unclear, however, and to be seen in practice, how federal district courts will review ex parte applications for seizure and delineate the “extraordinary circumstances” required for issuance of such orders.
The DTSA Provides for Immunity for Employee Whistleblowers and Adds Employer Notice Requirements.
Also, noteworthy in the DTSA are immunity provisions for corporate “whistleblowers.” In cases where an employee files a lawsuit against her employer for taking retaliatory action in response to the employee’s “whistleblowing” (i.e. reporting a suspected violation of law by the employer), the DTSA immunizes whistleblowers who disclose or raise trade secret issues for the purpose of reporting the suspected violation of law. Tied to this immunity is a requirement that any employment agreement prohibiting the employee’s disclosure of confidential information must include some notice or reference to the whistleblower immunity provisions of the DTSA.
All provisions of the DTSA, including the notice requirement for employers, took effect the date DTSA was signed into law. Therefore, employment agreements made or modified after May 11, 2016 should include some reference to the whistleblower immunity provisions. Failure to do so will preclude a prevailing employer from recovery of attorneys’ fees or exemplary damages in a suit against its employee where the employee’s claim was brought in bad faith.
Article by John Hendricks, a former Partner at Reed & Scardino, where he practiced commercial litigation at both the trial and appellate levels. Currently, John is the Deputy Counsel and Head of the Constitutional and Commercial Litigation Division for the City of Chicago.
For further information regarding the protection of trade secrets under the new federal law, please contact us.