Jim McGrew: May 11, 2017 marked the DTSA's one year anniversary. What are the most important provisions of the DTSA for employers?
Neil McKittrick: The DTSA was largely modeled on the Uniform Trade Secrets Act (UTSA). However, the DTSA contains several unique provisions. Under extraordinary circumstances, an owner of a trade secret can obtain a civil seizure order to prevent the disclosure of its trade secrets, meaning that a court can order the U.S. Marshal Service to seize property (such as a server or computer) that contains the owner's trade secrets. Additionally, the DTSA contains a provision exempting "whistleblowers"—which it defines as those who disclose trade secret information in confidence to a government agency or attorney solely for reporting or investigating a suspected violation of law—from civil and criminal liability for misappropriation of trade secrets. The DTSA also provides that an employer may recover up to double damages and attorneys' fees for willful and malicious misappropriations, but only if it had notified the employee of the DTSA's provision regarding whistleblower immunity in any contract with the employee regarding the use of trade secrets or confidential information. Finally, once an employer has initiated litigation against a current or former employee under the DTSA, it will have to consider the scope of relief that it seeks, as the DTSA prohibits injunctions that prevent individuals from entering into an employment relationship and requires all injunctions to comply with applicable state laws.
JM: What have we learned about the DTSA since it went into effect?
NM: There are two key takeaways from the first year of litigation under the DTSA. First, though the DTSA is a federal statute, state law has influenced courts deciding DTSA cases. Because Congress largely borrowed the definitions of "trade secret" and "misappropriation" from the UTSA, and because many plaintiffs bring companion UTSA claims, courts have relied on existing UTSA case law to determine whether a misappropriation occurred. Second, likely because of the high standard for obtaining a civil seizure order, employers have not routinely sought such relief. In fact, in only one reported case has an employer sought such an order, and the court denied the request because the employer could obtain fast and effective relief through a temporary restraining order.
JM: What are some policies or best practices that employers can put in place to protect their trade secrets?
NM: An employer's primary goal should be to ensure that trade secrets remain "secret." For example, employees who have access to trade secrets should sign confidentiality agreements. Employers should also consider taking other reasonable steps to maintain the confidential nature of their trade secrets, such as limiting access to trade secrets to those employees who have a legitimate business reason to use that information, reminding departing employees of their confidentiality obligations, storing trade secrets only in password-protected locations and on password-protected devices, and implementing a strong password policy.
JM: Can you provide an example of a case in which a company successfully employed the protections of the DTSA?
NM: In First Western Capital Mgmt. Co. v. Malamed, No. 16-cv-1961-WJM-MJW, ECF Doc. 45 (D. Colo. Sept. 30, 2016), the court preliminarily enjoined a former employee from soliciting his former employer's customers and required him to return to the former employer its trade secrets. The court found that there was sufficient evidence of threatened misappropriation to support such an injunction based on the employee's refusal to disavow his intention to seek employment at a competitor of his former employer, his expressed belief that the client information in his possession did not contain any trade secrets, and his professed ability to recreate that information based on publicly available information and his own memory. Many employees in trade secrets cases make similar statements, which may form the evidentiary basis, in the right case, for the threat of irreparable harm that is necessary to support an injunction.
JM: What is on the horizon for the DTSA? Are there aspects of the DTSA that haven't been explored by the courts?
NM: The DTSA is only in its infancy, and many of its provisions require judicial interpretation. The section regarding whistleblower immunity is particularly worth following. Under the DTSA, an individual cannot be held liable for misappropriation for certain disclosures made to report or investigate a "suspected" violation of law. No court has addressed the meaning of "suspected," and there is no apparent standard governing this provision. That is, must an individual who discloses a trade secret to report or investigate a violation of law have a subjective, good faith belief that a legal violation has occurred, have an objectively reasonable belief that a violation has been committed, or both? We do not know, at least not yet.
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