What does the new Defend Trade Secrets Act mean for your business?

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DiMuroGinsberg attorneys discuss how the new Defend Trade Secrets Act offers important protections for your company’s intellectual property.

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act, 18 USC § 1831 et seq. (“DTSA”), which contains important provisions affecting companies and employers of all sizes. The DTSA amends the Economic Espionage Act of 1996 to authorize private companies to bring (and be subject to) suit in federal court for trade secret misappropriation, including misappropriation occurring outside the U.S., and to obtain a broad array of remedies. The DTSA also includes important provisions governing the obligations of employers and the rights of employees with respect to trade secrets, and extends those obligations and rights beyond traditional employees to contractors and consultants working for the employer.

Salient features of the DTSA are:

  • Provides a federal cause of action for trade secret misappropriation in addition to, but not in place of, the traditional state law trade secret protections. Private parties now can bring trade secret claims in a federal civil action, as opposed to being limited to criminal actions brought by the U.S. Attorney General, as was the case under the prior act.
  • Defines a trade secret as information in any form that derives independent economic value from not being generally known or ascertainable by others who can obtain economic value from it, and that is the subject of reasonable efforts to maintain its secrecy. A trade secret is covered by the DTSA if it is “related to a product or service used in, or intended for use in, interstate or foreign commerce.” Misappropriation means acquisition of the trade secret by improper means where the acquirer knows or has reason to know that the information is a trade secret.
  • Applies to conduct occurring not just in the U.S., but outside the U.S. if the offender is a natural person who is a citizen or permanent resident alien of the U.S., or is an organization organized under the laws of the U.S., including a U.S. state or territory.
  • Exempts employees, including contractors and consultants from liability for certain disclosures of trade secrets, such as to law enforcement, a government official, a court, or attorney, if to report or assert a violation of law, including whistle-blower actions, provided the disclosure is confidential. The employer is required to inform the employee of this immunity in an employment agreement or by cross-referencing a policy document, such as an employee manual, which sets forth practices and procedures the employee must follow.
  • Expands remedies for a DTSA violation to include seizure of property (subject to compliance with several procedural requirements); an injunction; an award of damages for actual loss and unjust enrichment (e.g., the offender’s profits), which can be calculated as a reasonable royalty for use of the trade secret; and exemplary damages up to 2 times the amount of actual or unjust enrichment damages for willful and malicious misappropriation. Where there is a threatened misappropriation of trade secrets by a former employee, a court may issue an injunction imposing restrictions on employee’s present or future employment.
  • Provides for an award of attorney’s fees to the prevailing party for willful and malicious misappropriation for bad faith assertion of misappropriation or for bringing or opposing a motion to terminate an injunction.
  • Increases criminal sanctions for trade secret theft, by increasing the fine for organizations to the greater of $5,000,000 or 3 times the value of the stolen trade secret, including expenses for research, design, and other costs of reproducing the trade secret that the organization has avoided as a result of the theft.

In a business environment that is substantially international, and becoming increasingly more so even for smaller companies and employers, the DTSA provides a significant tool for protecting intellectual property in the U.S. and abroad. However, the DTSA also places potentially significant obligations on employers to ensure that their agreements with employees, contractors and consultants comply with the requirements of the Act.

DiMuroGinsberg has an experienced team of lawyers who regularly help clients navigate the legal issues impacting their businesses, such as those raised by the DTSA. For further information, contact Cecil Key or Jonathan Mook.