Sorry, folks, no cheeky title here – this is serious business. Theft of trade secrets is a significant threat to businesses, and the country’s economic growth – by some estimates, trade secret theft and economic espionage cost the U.S. economy tens, and perhaps even hundreds, of billions of dollars each year (see https://www.fbi.gov/news/testimony/combating-economic-espionage-and-trade-secret-theft).
On the federal level, the primary weapon against such theft has been the Economic Espionage Act. The Economic Espionage Act had a significant shortcoming, however – it only allowed for criminal and civil action to be taken by the federal government. The actual victims of trade secret theft (generally speaking, U.S. businesses) had to rely upon a patchwork of state laws to seek remedies (both injunctive and monetary). Last month, however, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”) which, among other things, created a private civil cause of action on the federal level for misappropriation of a trade secret. The passage and contents of the DTSA have been widely reported, and although a full discussion of the same is beyond the scope of this post, we do want to point out several key provisions, which may warrant further discussion with your legal team (whether “in-house” and/or outside counsel).
Cause of Action
The DTSA allows the owner of a misappropriated trade secret to file a civil lawsuit, if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. Under certain circumstances, monetary damages can be doubled, and attorney’s fees can be awarded to a plaintiff. Attorney’s fees can also be awarded to a defendant, if a claim of misappropriation is found to have been made in bad faith.
Seizure of Property
Upon meeting several requirements, a court can grant an ex parte order to seize the property of another, to prevent the propagation or dissemination of the trade secret that is the subject of the civil action.
Immunities, Exceptions, and Notice Requirement
The DTSA provides an explicit list of circumstances where the disclosure of trade secrets will not incur liability, whether under federal or state trade secret law, criminally and/or civilly. These circumstances include disclosure in a “whistleblower” anti-retaliation suit by the disclosing employee, or to a government official or an attorney solely for reporting or investigating a suspected violation of law, or in a lawsuit or other proceeding, if the disclosure is made “under seal.”
Of particular note, under the DTSA employers are required to give notice of these immunities to employees, “in any contract or agreement [created or updated on or after May 11, 2016] with an employee that governs the use of a trade secret or other confidential information.” Under the notice obligation, an “employee” covers “traditional” employees, but also independent contractors and consultants.
If an employer does not give the required notice (either in the agreement itself, or via a cross-reference to another document that discusses the employer’s policy for reporting suspected violations of law), the employer cannot collect attorney’s fees or exemplary damages in a lawsuit against the non-notified employee for misappropriation of trade secrets.
Most agreements include some provisions regarding confidential information. Thus, the passage of the DTSA affects a wide range of employers, including those that engage consultants and other outside parties. We at Danielson Legal have created draft language that can be inserted into applicable agreements, and would be happy to share it if you contact us. At a minimum, all new and revised agreements from May 11, 2016 forward should be reviewed, and revisions to them may be warranted.