The New Defend Trade Secrets Act (DTSA): An Employer’s Guide

The new Defend Trade Secrets Act (DTSA)  is designed to create a federal standard for trade secret protection – and includes remedies that permit federal judicial seizure of stolen trade secrets.  DTSA fills an important gap in the statutory framework that employers have available to them to retrieve trade secrets stolen by departing employees, such as the  CFAA (.pdf), the Economic Espionage Act and the patchwork of state trade secret laws (.pdf).

Here is what employment lawyers need to know and do now:

  • Employers have have expanded access to the federal courts, on a federal jurisdiction basis, to take action against those who steal trade secrets.
  • Employees taking employer data are more readily covered under an expanded definition of trade secrets.  

The definition of trade secrets is subtly, but critically, updated.  Under the EEA and typical state laws (which are never actually typical), the “standard” definition of a trade secrets is the well-known two-part formula: a trade secret is (a) information the owner has taken reasonable measures to keep secure and (b)  information that “derives independent economic value….from not being generally known to…the public.”

The DTSA rejects part (b) of that definition (and amends EEA ), replacing it with a much more expansive and contemporary definition.  Under DTSA, he second part of the formulation now reads (b), information that “derives independent economic value….from not being generally known to another person who can obtain economic value from the disclosure or use of the information.”

Employer Action Item:  (1) Understand which new information might be covered under this expanded definition and ensure all agreements and workplace policies are enlarged accordingly.  (2) Ensure there are adequate reasonable protections in place to secure those “new” trade secrets.  (3) Update your employment, contractor, business partner and NDA agreements.

  • Employers can seek remedies from those induce the misappropriation (future employers).  This is not new in trade secret law but it is critical to note.

Employer Action Item: Update hiring policies to ensure that hiring managers do not induce the transfer of a trade secret (should be in place already); make sure such policies cover the expanded definition.

  • New Seizure rights.  Of course, the blogosphere is abuzz with discussion of the new seizure rights (in extraordinary circumstances, there can be an ex parte order for the seizure of property to prevent reproduction or dissemination of a trade secret).

Employer Action Item:  Some of your teams may be well-trained for handling a law enforcement “raid.”  Others may not be.  There is likely now an expanded group of employees who might face the unhappy part of an enforcement action — make sure they know what to do in the event it happens.

  • Employers can seek injunctive relief against former employees – in limited circumstances.  The DTSA allows for an employer to seek injunctive relief against a former employee, but it cannot “prevent a person from entering into an employment relationship” and that any injunctive limits on that relationship can only be “based on evidence of threatened misappropriation and not merely on the information the person knows.”  The law likely does not preempt state law generally, and is specifically not intended to “conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”

Employer Action Item:  Subsequent employers should ensure that communications by or concerning new employees are carefully drafted so as not to inadvertently threaten misappropriation.  Until the courts address this topic, such communication, however benign, may be deemed to be a threat of misappropriation.

  • Whistle blower protection, part one.  An employee has immunity from liability for revealing a trade secret if the secret is revealed to any government official directly or through a lawyer, and the disclosure is made “solely for the purpose of reporting or investigating a suspected violation of law.”  An employee is likewise immunized if she reveals the secret in a sealed court filing.

Employer Action Item:  See part two, below.

  • Whistle blower protection, part two.  An employer must notify any employee of the whistle blower immunity in any “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”  This can be done by cross-referencing an anti-retaliation policy on point.  An employer who fails to do so will not be avail itself of exemplary damages or attorney fees under the DTSA.

Employer Action Item:  Include a whistle blower notice in all contracts that concern an employee’s or contractor’s handling of trade secrets.  it is deemed sufficient under the law that an employer provide a cross-reference to the employer’s policy concerning the reporting of a violation of law (your anti-retaliation policy).

To avoid any ambiguity, an example of such a notice (that follows the provisions of an agreement setting out an employee’s or contractor’s requirement to keep trade secrets confidential)  might read:

Notice Pursuant to the Defend Trade Secrets Act of 2016

Notwithstanding your obligations under sections __ – __ of the foregoing, you may have certain rights under law.

Reporting Violations of Law:   Notwithstanding any other provision of this Agreement, you are required to report suspected violations of any law in accordance with Employer’s ethics and reporting policy.  Employer’s detailed policy concerning the reporting of any suspected violation of law can be found here [provide a link or a copy].

Anti-Retaliation Policy:  Notwithstanding any other provision of this Agreement, if you report a suspected violation of the law, you will not be punished or subject to any adverse employment action.  Employer’s detailed policy against retaliation can be found here [provide a link or a copy].  .

Immunity Under Law Concerning Trade Secrets.  Notwithstanding any other provision of this Agreement, you will not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of any of the above-referenced trade secrets that:

(a) is made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney solely for the purpose of reporting or investigating a suspected violation of law; or

(b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

Use of Trade Secrets in a Lawsuit Against Employer.  Notwithstanding any other provision of this Agreement, if you file a lawsuit against Employer alleging that Employer retaliated against you for reporting a suspected violation of law, you may disclose any of the above-referenced trade secrets to your attorney and you may use any of the above-referenced trade secrets in that lawsuit, provided: (a) you file any document containing such a trade secret under seal, and (b) you do not disclose the trade secret, except pursuant to court order.

 

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