What every business needs to know about the Defend Trade Secrets Act

On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA) into law. The law became effective upon signing. Among other things, the DTSA creates a private cause of action for trade secret misappropriation under federal law. Previously, trade secret misappropriation claims were governed by individual state statutes, which largely followed the Uniform Trade Secrets Act (UTSA).

The DTSA has substantial political and business support, as it provides businesses with a new way to protect their valuable competitive information. The DTSA has many similarities to the UTSA, but also has some important differences. This post highlights six important things that every company should know about the DTSA.

1. The DTSA provides for civil action in federal court

The DTSA amends the Economic Espionage Act of 1996 to provide that: “[a]n 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.” This broad language provides a basis for jurisdiction even if the trade secret was still in development, provided it was related to a product intended to be sold/used in interstate commerce. Like the UTSA, the statute of limitations for bringing a claim under the DTSA is three years. There are many benefits to federal jurisdiction for misappropriation claims, including the technical expertise of federal courts, as well as uniformity and predictability of outcomes.

2. Trade secrets are defined broadly

The DTSA uses the definition of trade secret that is already set forth in the Economic Espionage Act rather than the definition used in the UTSA. “Trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:

• The owner has taken reasonable measures to keep such information secret; and
• The information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

This definition is important, as it highlights that trade secret information must not only be proprietary, but also that the owner is actively taking steps to protect the confidentiality of the information.

3. Misappropriation

The definition of “misappropriation” under the DTSA is almost identical to the UTSA definition. Misappropriation under the DTSA, in general, includes: without permission a) obtaining a trade secret that was knowingly obtained through improper means; or b) disclosing or using a trade secret without knowing either 1) that it is a trade secret; or 2) that it was obtained through improper means. “Improper means” include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” However, misappropriation does not include “reverse engineering, independent derivation, or any other lawful means of acquisition.”

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4. Available remedies

The DTSA provides many remedies, including injunctive relief, compensatory damages, exemplary damages, and, in some instances, reasonable attorneys’ fees.

Most controversially, the DTSA makes the remedy of ex parte seizures available to plaintiffs, which allows a plaintiff to seek to have the government seize misappropriated trade secrets without providing advance notice to the defendant. This is a potentially powerful remedy for plaintiffs. It is designed to stop the dissemination of a trade secret, especially to overseas, before its value has been lost through public disclosure. Because there is potential for abuse of this provision, the DTSA requires a party seeking ex parte seizure to establish that less drastic remedies, such as a preliminary injunction, are inadequate. It also prohibits copies to be made of seized property, and requires the ex parte orders to provide specific instruction for law enforcement when the seizure can take place and whether force may be used to access secured areas/facilities.

5. The DTSA protects whistleblowers

The DTSA includes specific protections for whistleblowers who disclose trade secrets under certain circumstances. Specifically, individuals will have civil and criminal immunity under state or federal trade secret laws if disclosure of a trade secret is made confidentially, solely for the purpose of reporting or investigating a violation of law to an attorney or government official; or in a complaint or other document filed under seal in any lawsuit or other proceeding.

Importantly, employers have an affirmative duty to provide employees notice of the new immunity provision in “any contract or agreement with employee that governs the use of a trade secret or other confidential information.” This notice should be provided in employee handbooks, policies, contracts, or other non-disclosure agreements with employees. Failure to comply means that the employer may not recover exemplary damages or attorney fees in an action brought under the DTSA for theft of trade secrets against an employee to whom no notice was provided. The definition of employee is drafted broadly to include independent contractors and consultants, so disclosures should be added to those agreements and policies as well.

6. The DTSA does not preempt state laws

The DTSA supplements, but does not eliminate or preempt, existing state trade secret and non-compete laws. This means that in the event of misappropriation, an employer may bring claims for trade secret misappropriation under both the DTSA and any applicable state statutes or common law.

What every company should do now

In light of the changes that come with the DTSA, it is a good time for all companies to revisit their employee and contractor policies to ensure they have appropriate whistleblower disclosures. This includes reviewing employment policies and contracts, consultant and independent contract agreements, severance agreements, non-competes, and non-disclosure agreements.

Companies are also well served by reviewing their trade secret and confidentiality programs to ensure they are taking adequate steps to protect their proprietary information.

Mindi Giftos is the managing shareholder of Whyte Hirschboeck Dudek S.C.’s Madison office. She practices in the areas of intellectual property and technology law, and leads WHD’s Technology Law Team. She can be reached at mgiftos@whdlaw.com. On July 1, 2016, Whyte Hirschboeck Dudek will combine with Husch Blackwell to deliver industry-focused legal services to clients.

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