DEFEND TRADE SECRETS ACT AIMS TO STRENGTHEN TRADE SECRET PROTECTION

By John Lindsey

DSC_3823cwebThis spring, the US Congress passed and the President signed the Defend Trade Secrets Act of 2016 (DTSA), which provides remedies at the federal level for misappropriation of trade secrets claims related to products or services in interstate and foreign commerce.

Previously, owners of trade secrets had to resort to state law for misappropriation claims.  Owners of trade secrets now may bring a claim under the applicable state law or a separate claim under the DTSA, or both.  As we have written in this space before, a trade secret is information that derives independent economic value from not being generally known to other persons who might obtain economic value from its disclosure and is subject to reasonable efforts to maintain its secrecy.

To remain eligible for some of the remedies in the DTSA, companies are well advised to comply with a provision in the DTSA related to employment contracts and non-disclosure agreements with their employees, independent contractors and consultants.  This provision gives immunity to employees who may disclose a company’s trade secrets to state and federal investigators as part of reporting, or an investigation of, a violation of law.  This provision also requires a company to include a notice of this immunity in its agreements with employees that address use of the company’s trade secrets or confidential information in order to recover enhanced damages and attorney fees in any action against an employee for trade secret misappropriation.

This provision of the DTSA also extends the notice requirement to a company’s agreements with its independent contractors and consultants that address use of the company’s trade secrets and confidential information.  Companies should review and revise their agreements with employees, independent contractors and consultants to ensure the appropriate notice is included.

One of the new protections provided by the DTSA is the ability for an owner of the trade secret to obtain a court order for a civil seizure by law enforcement on an ex parte basis, without notice to the alleged misappropriating party.  To obtain this remedy, the owner must show “extraordinary circumstances” exist such that seizure is necessary to preserve evidence or prevent further unauthorized use or distribution of the trade secret.   The DTSA also contains limitations on such seizure orders, including that the complaining party post a bond.  Wrongfully accused parties may seek damages and attorney fees for improper seizures.

Other remedies available to companies under the DTSA who prove misappropriation include damages and attorney fees.  A company may also seek an injunction against an employee to keep him or her from using or disclosing the company’s trade secrets when hired by a new employer, provided the injunction does not keep that person from entering into new employment.  If an injunction is determined to be inequitable, the court may require that a royalty be paid on any future use of the misappropriated trade secret.

As noted, companies should revise their agreements with new employees, independent contractors and consultants that cover use of trade secrets and confidential information to include the notice required under the DTSA.  This notice should also be included in any amendments or changes to existing agreements with employees, independent contractors or consultants.

If you have questions about safeguarding your intellectual property or the DTSA, the attorneys of the Forrest Firm are here to give you the answers and advice you need.