Defend Trade Secrets Act: What Businesses Should Know

A major change in a Federal Law passed recently, and it’s something you as a business owner may have missed. Passed by Congress in April and signed into law by President Obama in May, the Defend Trade Secrets Act amends current Economic Espionage Act of 1996, which criminalizes certain trade secret misappropriations, to allow civil lawsuits.

While this is important for intellectual property owners, the law may have a much larger impact on your business than you may think. For starters, the Defend Trade Secrets Act (DTSA) has a much broader reach, affecting every business that has trade secrets and its dealings with employees, contractors, and other third parties.

White and Case summarized the DTSA as follows:

 

“The DTSA allows the owner of a trade secret to bring a civil action within three years of when it learned, or reasonably should have learned, of the misappropriation. The definitions of "misappropriation" and "trade secret" under the DTSA are similar to those under the Uniform Trade Secret Act, which provides the basis for most state trade secret legislation. For an action to arise under the DTSA, the trade secret must be related to a product or service used in, or intended for use in, interstate or foreign commerce. The jurisdictional nexus to interstate or foreign commerce mirrors the existing language required for the Economic Espionage Act of 1996.”

Additionally, Lindquist Wood Edwards shared some of the key features of the law, noting that currently, businesses that fall prey to theft of trade secrets must act under state law, but many states have adopted the Uniform Trade Secrets Act (UTSA). Some of the key features of the DTSA include:

- Expansion of the statute of limitations from three years to five years
- Reduction of exemplary damages from treble to double
- Seizures are allowed, but only in rare and extenuating circumstances and only under very specific guidelines, and conducted by Federal agents, rather than private companies
- Restriction of employee mobility is possible, but only when there is a threat of trade secret misappropriation, not just knowledge of a trade secret
- Protections are afforded to whistleblowers attempting to reveal illegal activity

Learn more about the DTSA by reading the entire text, key features highlighted by Morgan Lewis, and steps you should take in writing agreements.

Due to the reach and whistleblower protections, the new DTSA affects the contracts that businesses have with all employees.

 
According to Forbes author Eric Goldman, who took a deeper look into the DTSA,

“[…] the DTSA has an unusually broad reach, and you are likely to encounter the law many times each day. Trade secret issues arise with every employee hiring and firing, in every business contract containing a non- disclosure or confidentiality clause, and every time an employee discusses the company’s business with a business partner, the public or friends and family. The DTSA now governs all of these activities.”

Additionally, the whistleblower immunity will affect your dealings with all employees, who should be notified immediately. According to Quarles and Brady, the passing of this law will have an immense impact on employee confidentiality agreements:

“The DTSA provides that an employee shall not be held criminally or civilly liable for the disclosure of a trade secret that is made “in confidence” to a government official or an attorney if the trade secret is disclosed solely for the purpose of reporting or investigating a suspected violation of law. Similarly, an individual who files suit for retaliation stemming from the employer's suspected violation of the law may disclose a trade secret to legal counsel and in a court proceeding, provided the individual takes appropriate measures to keep the trade secret confidential, including filing under seal.”

According to a Latham and Watkins article, 5 Things to Know about the Defend Trade Secrets Act of 2016, the firm highlights how trade secrets could become more prevalent due to the narrowing of patent protection for some forms of intellectual property due to “the passage of the American Invents Act and a number of Supreme Court decisions in recent years.”

The firm recommends businesses begin inventorying and protecting trade secrets now: “Systematically identifying confidential information that merits protection as a trade secret is a prudent, and often overlooked, step in maintaining a protectable trade secret portfolio.”

To qualify as a trade secret, the information must derive its value from being generally unknown to the public. Once identified, the intellectual property must also be the subject of reasonable measures to maintain its secrecy. These measures can include physical locks, security guards, access control, confidentiality agreements and document labeling. The law requires reasonable, rather than impenetrable, security measures.

 
Establishing an organized and well-documented trade secret inventory and standard protective measures will help prepare a company to enforce its rights when necessary.  For more, download the client alert, 5 Things to Know About the Defend Trade Secrets Act, from Latham and Watkins.

Companies gain tremendous value by taking a proactive, systematic approach to assessing and protecting their trade secret portfolios through a Trade Secret Audit.

In a trade secrets audit, a legal professional will help you to identify valuable information assets and evaluate the strengths and weaknesses of your company’s protections. This professional will consequently recommend corrective actions to be taken to help ensure your company’s assets are adequately protected, including assisting with effectively managing and protecting computer-stored data.  For more information on what goes into a trade secrets audit, read the Law360 article, 5 Tips for Running a Successful Trade Secrets Audit.

The new law mandates that employers provide notice of the immunity provisions of the law in any employee agreement that governs the use of a trade secret or confidential information, or by referencing a policy document provided to the employee that describes the employer’s reporting policy for a suspected law violation.

 
If an employer does not comply with the notice requirement, the employer is precluded from receiving exemplary damages or attorneys’ fees under the DTSA in an action against an employee for trade secret misappropriation.

Businesses should consider reviewing and revising handbooks, policies, and contracts governing the use of trade secrets and other confidential information that apply to employees, contractors, and consultants to comply with the DTSA. Latham and Watkins offers the following statement to be added to a handbook regarding the immunity clause:

“An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made in confidence to a Federal, State, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law. An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order.”

When taking steps to protect your intellectual property and ensure you are in compliance with all government regulations, it is smart to at least consult with any attorney. When looking for an attorney to help you protect your intellectual property, post a short summary of your needs on www.legalserviceslink.com and let the perfect attorney come to you!