Defend Trade Secrets Act: Update Your Employee Handbook to Protect Your Trade Secrets

Question: Should my company file a trade secrets claim against Company XYZ in federal court under the new Defend Trade Secrets Act of 2016 (DTSA)?

Answer:  If Company XYZ misappropriated a trade secret owned by your company prior to May 11, 2016, your only available option at this time is state court.  The DTSA defines a continuing misappropriation as a single claim.  Although the DTSA became effective immediately, it is applicable only to misappropriations of a trade secret occurring on or after the date of enactment (Obama signed on May 11, 2016). Your company should consider a DTSA claim for future misappropriations as it provides additional remedies and damages available.

Question:  When is the DTSA effective?

Answer: As noted above, on May 11, 2016 President Obama signed the DTSA effective immediately creating the civil private right of action in federal court as an original but not exclusive jurisdiction “if a trade secret is related to a product or service in, or intended for use in, interstate or foreign commerce.”  The DTSA is an amendment to the Economic Espionage Act and does not pre-empt state law.  The DTSA applies to any misappropriation of a trade secret for which occurs on or after the date of the enactment of DTSA (§1836(e)) with the benefit of uniform federal procedural and evidentiary rules.  The DTSA applies a three year statute of limitations after the misappropriation is discovered or by exercise of reasonable due diligence would have been discovered.  DTSA defined “misappropriation” and “improper means” similar with the exception that the DTSA included that improper means “does not include reverse engineering, independent derivation, or any other lawful means of acquisition.”

Question:  What provisions of the DTSA are advantageous to my company?

Answer: First the DTSA offers an ex parte seizure option upon “extraordinary circumstances” upon the requirements set forth in the act.  The DTSA includes specific language to protect the party against whom an order is directed from publicity. Additionally for remedies, the DTSA provides injunctive relief with appropriate affirmative actions, and payment of reasonable royalties if an injunction is inequitable. 

Second, the DTSA provides additional damages that may be awarded.  Both provide for recovering actual losses caused, damages for unjust enrichment not taking into account in determining actual loss, and attorney’s fees to the prevailing party for bad faith by either party in the claim or injunction or willful and malicious misappropriation. The DTSA, in lieu of other damages, includes a reasonable royalty for the unauthorized disclosure. Under the DTSA, exemplary damages and attorney’s fees may be forfeited by a party failing to meet the new whistleblower and anti-retaliation notice requirements as described below.

Question: Is my company required to take proactive steps to take full advantage of the available damages awarded by the DTSA in the future?

Answer:  Yes, the DTSA requires employers to provide advance notice to employees of the immunity from civil and criminal liability for confidential disclosure to the government or in a court filing and prohibition on employer retaliation provided by the act.  The DTSA definition of “employee” is broad also covering independent contractors and consultants.  Going forward, you are required to provide such notice of immunity and anti-retaliation to all broadly defined employees in any agreement governing use of trade secrets and/or confidential information or alternatively reference a company policy providing such notice.  If your company is not in compliance with this notice requirement, it may not recover exemplary damages or attorney fees against any employee not provided such notice.  Your company is not required to modify existing agreements; however, you can immediately take steps towards meeting such notice requirements including but not limited to creating a corporate policy to update its Employee Handbook and assess the most efficient means to tie the policy to existing confidentiality agreements, independent contract agreements, and other consulting agreements.  Additionally, all choice of law and venue selection provisions should be reviewed and modified as necessary to include the option to pursue a federal DTSA action.

Call Goosmann Law Firm today to help protect your trade secrets at 712-226-4000.