On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act ("DTSA"). DTSA creates federal protection for trade secrets by amending the Economic Espionage Act. Now, like the federal protections that have existed for patents, trademarks and copyrights, trade secret owners have a private cause of action that may be brought in federal courts against those who misappropriate their trade secrets.
Key provisions of DTSA include giving trade secret owners the ability to enforce their new claim in federal court. Before DTSA, actions meeting the threshold for federal court jurisdiction required the court to apply state law, and in many cases, state court was the only option. DTSA also provides that in order to be awarded exemplary damages or attorney fees under the statute, an employer must provide its employee notice of immunity from whistleblowing in any contract with that employee that governs the use of trade secrets or other confidential information. Employers should modify their employment contracts and policies, and consider whether their contractual relationships with independent contractors, joint-developers, and others with whom trade secrets are shared, may need amendment. Finally, among other things, to prevent the dissemination of the misappropriated trade secrets, DTSA creates a process for ex parte civil seizure under extraordinary circumstances.
Before DTSA, owners of trade secrets had to rely upon the state laws applicable to the situation presented. Many states have their own versions of the Uniform Trade Secrets Act. Those state laws protect trade secrets if the owner proves the information was not generally known or readily ascertainable, the information derived independent economic value from secrecy, the owner made reasonable efforts to maintain the information's secrecy, and the defendant acquired the trade secret by improper means. Differences in how state courts applied their respective laws lead to a patchwork of protections difficult in which to operate for trade secret owners. DTSA does not preempt state law causes of action, though, so now an opportunity for combined state and federal claims exists.
On a related front, the Obama Administration earlier in May issued a report announcing it intends to convene a group of experts in labor law, economics, government and business to research the impact of non-compete agreements on the nation's economy. Use of such agreements protect companies' trade secrets, encourage innovation, boost employer investment in its workforce, and provide stability. For certain sectors, however, non-competes are criticized for possibly reducing job mobility and the worker pool, and restricting consumer choice. The President has tasked the group with putting forward a set of best practices for states to follow in potential reforms related to enforcement of non-compete agreements.
Implementing effective, but economical, protection for trade secrets is an ongoing effort for every company that holds an edge in its industry because of its confidential proprietary processes and information. DTSA provides companies another avenue to retain that competitive advantage. DTSA should also lead to a more balanced approach that will benefit all companies across the United States.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
