Defend Trade Secrets Act: What Does It Mean for Employers?

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (DTSA), creating a cause of action under federal law for trade secret misappropriation that largely mirrors the current state of the law under the Uniform Trade Secrets Act (UTSA), which has been adopted by 48 states including California.  The DTSA does not preempt state law, but rather supplements existing state law by providing a national standard for trade secret misappropriation and granting easy access to the federal courts to resolve disputes.

What Is a Trade Secret?

A trade secret is defined as any valuable business information that is not generally known and is subject to reasonable efforts to preserve confidentiality.  Confidential customer lists or technical product information are examples of information that is protected by employers.  Many trade secret misappropriation claims involve employee mobility issues — when an employee brings the trade secret information of a prior employer to a new one.

Remedies Available

A DTSA claim now provides a new cause of action in federal court where jurisdiction may not have otherwise existed.  This will likely result in a significant shift of trade secret litigation from state to federal courts.  While there is some overlap between the scope of the DTSA and those remedies currently available in many state courts, the DTSA gives powerful new tools to businesses looking to protect their trade secrets.  The remedies available under the DTSA include injunctive relief, exemplary damages (up to double the actual damages), and attorney’s fees.  In extreme cases, the trade secret owner will be able to apply for a court order, without giving any notice of the lawsuit to the defendant, that allows for the seizure of any property necessary (a laptop or documents, for example) to prevent the dissemination of a misappropriated trade secret.  However, in order to take advantage of these remedies, employers must comply with the DTSA’s whistleblower protection requirements.

Employer’s Duty

The DTSA protects whistleblowers from civil and criminal liability for disclosing a trade secret in confidence to a government official or attorney solely for the purpose of reporting or investigating a suspected violation of trade secret law.

In order for employers to gain the protection of the new act and be eligible to recover exemplary damages and attorney’s fees for misappropriated trade secrets, they must provide notice of the employee immunity provisions of the DTSA in any agreement governing confidential information/trade secrets.  The DTSA notice provision applies to contractors and consultants in addition to employees, so those agreements should also be reviewed.  Accordingly, the DTSA requires that employers update any template confidentiality or employment agreements for use with new employees, consultants or independent contractors to provide the whistleblower immunity notice.  It is also recommended that employers amend all preexisting, in-force confidentiality or employment agreements with current employees, consultants or independent contractors to provide the whistleblower immunity notice.  By adding the immunity notice to these agreements, employers benefit from the new remedies available under the DTSA.