Congress Passes Defend Trade Secrets Act

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By Paul J. Singerman, Esq.

On May 12, 2016 Congress passed the Defend Trade Secrets Act (DTSA). This new legislation amends the Economic Espionage Act of 1996. The DTSA applies to misappropriation of trade secrets occurring after May 12, 2016.

The DTSA gives private companies a federal cause of action for trade secret misappropriations. Previously, the only option for those wanting to prosecute trade secret cases was to bring actions on a state by state basis. Such state by state filings often leads to inefficient court proceedings and confusion for the businesses involved. Consider, for example, companies that conduct business across multiple states. In the past, prosecuting trade secret cases would have meant dealing with different laws for each state in which the company conducted business. The DTSA seeks to remedy this issue by implementing a federal law that can be applied to cases in any state. Despite the fact that the DTSA is federal law, it does not circumvent how states treat covenants not to compete. If the state in question enforces non-compete agreements, employers are still able to limit the post-employment activities of former employees. In addition, the DTSA doesn’t replace state trade secret laws. While the pathway for a federal cause of action has been established, the trade secret laws of certain states may provide businesses with greater protection against misappropriation than federal law can. In this case, state law may still be implemented.

To further bolster the strength of companies against information leaks, the DTSA has established a mechanism for the civil seizure of property for the misappropriation of trade secrets. In other words, the DTSA creates the ability of a court to allow the taking of assets from people thought to be involved in the leak without necessarily charging such people with any wrongdoing. Furthermore, the DTSA allows anyone with an interest in any material obtained through civil seizure to request that the court encrypt such material.

Beyond the power of civil seizure, the DTSA also provides traditional remedies for misappropriation of trade secrets. These include injunctions, compensatory damages, exemplary damages, and attorney’s fees. Important to note are the restrictions placed on the ability to obtain exemplary damages and attorney’s fees for trade secret misappropriation. Under the DTSA, the misappropriation must be proven to have been, “willful and malicious”. Attorney’s fees may also be collected against a plaintiff if it is proven that the claim was brought in, “bad faith”.

Though the issues that have been discussed thus far were implemented to discourage the misappropriation of trade secrets, the DTSA also provides protection for those who share trade secrets in a whistleblower context. Under to the DTSA, the disclosure of trade secrets is protected if made in confidence to a government official or to an attorney for the sole purpose of reporting or investigating a suspected legal violation. Additionally, the DTSA protects the disclosure of trade secrets in a complaint or other pleading if the filing is made under seal.

To further bolster the protections described in the preceding paragraphs, companies must provide notice of these protections to their employees, consultants and independent contractors when having them sign non-disclosure or other agreements governing the use of trade secrets and other confidential information. If a company fails to do so, it will lose its right to recover exemplary damages and/or attorney’s fees under the DTSA.  As a result of this requirement, companies should consider revising their documents that govern the use of trade secrets or other confidential information.

The Defend Trade Secrets Act can be viewed in its entirety at https://www.congress.gov/bill/114th-congress/senate-bill/1890/text .

For further information on this topic, please contact Paul J. Singerman at 216-292-5807 or psingerman@smdklaw.com.