On Wednesday, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”), which, among other provisions, allows companies to pursue claims for trade secret misappropriation in federal court and to seek remedies such as a seizure order to recover trade secrets that have been stolen by their employees. The DTSA is effective upon signature, which means it’s now the law of the land for such claims. The final version of the bill describes a trade secret as “a form of intellectual property that allow[s] for the legal protection of commercially valuable, proprietary information.” The purpose of the bill, according to its sponsors, was to allow the owners of trade secrets to protect innovation by giving them the right to file suit in federal court, paralleling that same right as it applies to other forms of intellectual property.
Under the Uniform Trade Secret Act (UTSA), an employer can pursue trade secret claims in state court, but Massachusetts has not adopted the UTSA. Instead, Massachusetts employers are limited to civil remedies under the common law if an employee steals trade secrets. The DTSA expands the Economic Espionage Act of 1996, which protects other forms of intellectual property, to provide a federal civil remedy for theft of trade secrets. It also allows employers to seek injunctive relief and monetary damages in federal court if they are seeking to prevent disclosure of trade secrets to competitors and, under some circumstances, actually allows the government to seize misappropriated trade secrets without notice to the alleged wrongdoers.
In order to avail themselves of the ability to file in federal court under the DTSA, employers will need to advise employees who have already signed confidentiality or trade secret agreements that they are immune from civil or criminal liability if they disclose a trade secret in confidence to a government official, directly or indirectly, or to an attorney for the purpose of reporting a violation of the law. The statute lays out ways in which an employer can meet this affirmative obligation, including a cross-reference to a policy that is given to affected employees and that lays out the reporting procedures for employees who suspect a violation of the law. Significantly, the statute defines employee broadly to include independent contractor and consultant relationships.
Significant aspects of the statute include:
- Successful employers may be able to recover actual damages as well as damages up to two times the amount of actual damages in the case of extraordinary circumstances, restitution, injunctive relief, and attorneys’ fees.
- The ability to seize property is subject to some limitations. Although an employer may ask a court to seize misappropriated trade secrets without providing notice to the alleged wrongdoer, such orders have to contain specific instructions for law enforcement officers and whether force will need to be used. Moreover, the employer will need to show that other remedies would be inadequate.
- Injunctive relief is not available if it would prevent an individual from being employed. A court could place some conditions on an employment relationship but only if the company could show that there was an actual threat of misappropriation. Inevitable disclosure would not suffice here.
- There are also a number of provisions that impact the ability of an employer to participate in criminal court proceedings under various federal criminal statutes.
- As noted above, the DTSA also provides protection to whistleblowers who might disclose trade secrets to law enforcement in confidence in order to report or investigate suspected violations of the law. It also provides protection for the confidential disclosure of a trade secret in some lawsuits, including an anti-retaliation proceeding.
What does this mean for you?
Employers who already have a whistleblower policy need only issue a memorandum to employees who are currently subject to confidentiality/trade secret agreements to inform them that this whistleblower policy also applies to any trade secrets that might be disclosed directly or indirectly to a government official or an attorney for the purpose of reporting a violation of the law. Employers who do not have a whistleblower policy can either develop one for cross-reference purposes or provide similar information to the covered employees in the form of an addendum to the existing agreements. Going forward, employers should revise their confidentiality/trade secret agreements to ensure that they are compliant with the provisions of the DTSA. This may also be a good time to be sure that such agreements have clear definitions of trade secrets and confidential information and are not overly broad.
Employers would also be well-advised to check both their on-boarding and exit procedures to ensure that prospective employees aren’t bringing trade secrets — and accompanying lawsuits — with them to their new employer or leaving with them when they resign or are terminated. This may involve training as well as careful oversight of contractors and consultants to ensure that your confidential information/trade secrets are adequately protected. As is the case with common-law trade secret protection, you will only be able to bring a claim under the DTSA if you can show that your company takes reasonable security measures to protect such information. Employers may want to check with their labor and employment counsel for assistance complying with this new statute.