"Can You Keep A Secret?" Why the Defend Trade Secret Act of 2015 May Affect Your Business.

Until now, defending "trade secrets" in civil cases has largely been handled in state courts. That might soon change, thanks to a new law signed by President Obama yesterday: the Defend Trade Secret Act of 2016 ("DTSA"). The DTSA amends several sections of two federal laws that had already been on the books, the Economic Espionage Act of 1996 and the Foreign and Economic Espionage Penalty Enhancement Act of 2012, to provide a federal basis for civil claims of misappropriation of trade secrets.

Companies damaged by the misappropriation of trade secrets have typically filed claims based upon state statutes modeled after the Uniform Trade Secrets Act ("UTSA"), which has been adopted at least in part by all but two states. Although the DTSA resembles many of the provisions of the UTSA, the new law does not preempt it and differs in many material respects.  Here are some things that you should know about the DTSA that may affect how your business protects and defends its valuable trade secrets.

(1) ALLOWS FOR DIRECT FILING OF CIVIL CLAIMS IN FEDERAL COURT: No longer does the U.S. Attorney General have exclusive standing to bring civil claims for trade secret misappropriation in federal court. Instead, the new law provides that any injured party may bring a civil action for trade secret misappropriation directly in federal court "if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce." 18 U.S.C. § 1836(b). Under the DTSA, federal district courts shall have original jurisdiction of such civil actions. When analyzing where to file a lawsuit, parties should consider the forums made available by this statute.

(2) EX PARTE SEIZURES ARE NOW AVAILABLE: The DTSA contains a procedure for the seizure of misappropriated trade secrets. Under 18 U.S.C. § 1836(b)(2)(A)(i), "[b]ased on an affidavit or verified complaint satisfying the requirements of this paragraph, the court may, upon ex parte application but only in extraordinary circumstances, issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action."  Various requirements must be met before a court will issue such an order, and the order must also include several specific elements. See 18 U.S.C. § 1836(b)(2)(A)(ii); 18 U.S.C. § 1836(b)(2)(B). Once seized, the court will hold a hearing in which the party who obtained the order "shall have the burden to prove the facts supporting the findings of fact and conclusions of law necessary to support the order." 18 U.S.C. § 1836(b)(2)(F)(ii). If the party fails to meet that burden, the seizure order shall be dissolved or modified appropriately. Id.  

Beware that, to protect against overzealous seizure attempts, the DTSA also provides that a person damaged by reason of a wrongful or excessive seizure will have standing to bring a separate cause of action. 18 U.S.C. § 1836(b)(2)(G). 

(3) EMPLOYERS MUST PROVIDE NOTICE OF WHISTLEBLOWER IMMUNITY:  The DTSA provides whistleblower immunity and mechanisms to disclose trade secrets to the government or courts without creating a cause of action under the statute. 18 U.S.C. § 1833(a),(b).  The DTSA also requires that employers provide "notice of the immunity" available under the statute "in any contract or agreement with an employee that governs the use of a trade secret or other confidential information." 18 U.S.C. § 1833(b)(3)(A).  Because this could include various types of employment contracts, including contracts with contractors and consultants, employers should closely review their agreements and policies to ensure compliance with the DTSA.

To be compliant with the notice requirement, an employer may provide "a cross-reference to a policy document provided to the employee that sets forth the employer's reporting policy for a suspected violation of law." 18 U.S.C. § 1833(b)(3)(B).  Employers who are non-compliant with the notice requirement may not be awarded exemplary damages or attorney fees in an action against an employee to whom notice was not provided.  18 U.S.C. § 1833(b)(3)(C).

(4) STATUTE OF LIMITATIONS:  Although the DTSA allows for the filing of civil actions in federal district courts, parties must be aware that such suits "may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered."  18 U.S.C. § 1836(d). Also important, the DTSA considers that "a continuing misappropriation constitutes a single claim of misappropriation." Id.

While passage of the DTSA will provide several new enforcement tools to address a claim of misappropriation, businesses should still be reminded to have in place reasonable secrecy measures to ensure that their claimed "trade secrets" actually are just that: secret.  For further information regarding the DTSA and how it can affect your business, please contact me at your convenience.