The Enactment of the Defend Trade Secrets Act
The cost of intellectual property theft to American businesses has been estimated to exceed $300 billion per year.  In an effort to deter this misconduct and minimize the impact on American companies, Congress recently passed the Defend Trade Secrets Act of 2016 (“DTSA”), which was signed into law and became effective on May 11, 2016. The DTSA creates a new federal court civil remedy for trade secret misappropriation occurring on or after its effective date.
Key Features of the DTSA
Employers and other trade secret owners should be aware of the following key features and provisions of the DTSA:
The DTSA Does Not Displace State Laws on Trade Secret Misappropriation.
The DTSA does not displace or preempt state laws that provide remedies for trade secret misappropriation. Instead, the DTSA creates new obligations and federal remedies for trade secret owners seeking to protect their trade secrets. Trade secret owners may now choose to bring a trade secret misappropriation claim both under applicable state laws and the DTSA.
Claims under the DTSA May Be Brought in Federal or State Courts.
Companies who wish to assert trade secret misappropriation claims now have the option of bringing those claims in federal court. But because the DTSA confers on federal court “original” (not “exclusive”) jurisdiction, trade secret owners also have the option of bringing a DTSA claim in state courts.
The DTSA Includes a Variety of Effective Remedies.
The remedies available to trade secret owners under the DTSA include: injunctive relief (for actual and threatened misappropriation); actual damages caused by trade secret misappropriation; exemplary damages (up to two times the amount of actual damages) for malicious trade secret misappropriation; and reasonable attorneys’ fees (for the prevailing party).
In addition to these remedies, the DTSA offers the unique remedy of ex parte seizures, which allows a federal judge to order the seizure of trade secret materials by law enforcement authorities. To obtain this remedy, the trade secret owner must show that a preliminary injunction or temporary restraining order would be inadequate to prevent the propagation or dissemination of the trade secret and that if notice to the perpetrator were provided, the defendant would destroy, move, or hide the property to be seized.
While ex parte seizure orders are a powerful new means to combat trade secret misappropriation, caution should be exercised in seeking such relief because if a court later determines that a seizure was wrongful or excessive, the court may award compensatory damages, punitive damages, and attorneys’ fees against the party seeking the seizure.
Trade Secrets Are Disclosed to the Court under Seal.
The DTSA reflects a policy of protecting the confidentiality of trade secrets. To this end, courts may not authorize or direct the disclosure of any information the owner considers to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that details the owner’s interest in keeping the information confidential. A trade secret owner may also request to have any trade secret material that is seized be protected by encryption.
The DTSA Provides Whistleblower Immunity.
The DTSA provides immunity for whistleblowers from civil and criminal liability for making limited disclosures of trade secrets to government officials, or to an attorney, for the purpose of reporting or investigating a suspected violation of law. This immunity only applies to disclosures of trade secrets made “in confidence.”
An employee who files a retaliation lawsuit stemming from the employer’s suspected law violation may disclose trade secrets to his or her attorney and may use the trade secrets in the court proceeding, provided the employee only discloses the trade secrets under seal and pursuant to court order.
Employers Must Provide Notice to Employees of the Immunity Provisions to Be Eligible for an Award of Exemplary Damages and Attorneys’ Fees.
If an employer fails to provide notice of the DTSA’s whistleblower immunity protections in its contracts with employees and independent contractors, the employer may not be awarded exemplary damages or attorneys’ fees in a claim brought under the DTSA. This notice obligation only applies to contracts entered into or updated after the enactment of the DTSA. Employers may comply with the notice requirement by including in a contract a cross-reference to a policy document that provides notice of the DTSA’s immunity protections.
Practical Takeaways for Employers and other Trade Secret Owners
- Employers should examine their contracts and confidentiality policies with employees and independent contractors to ensure compliance with the notice requirement for the DTSA’s immunity provisions.
- Employers and other trade secret owners who are considering whether to bring a trade secret misappropriation claim should also examine available state law options and consult with legal counsel regarding the advantages of bringing a DTSA claim in federal court versus state court.
- Employers should examine their hiring and on-boarding procedures to ensure reasonable steps are taken to prevent new employees from bringing trades secrets with them from a prior employer.
- Employers should examine their procedures for exiting employees to ensure the return of confidential and trade secret information.
 2013 U.S. Report of the Commission on the Theft of American Intellectual Property.