New Agreements Required to Defend Your Trade Secrets

Companies should act now to protect their trade secrets in light of the new Defend Trade Secrets Act (DTSA), which was signed by President Obama on May 11 and became effective immediately. The DTSA protects trade secrets, defined as information that: (A) derives value from not being generally known; (B) the owner took reasonable steps to keep secret; and (3) affects interstate commerce.

The DTSA provides a major new weapon in the fight to protect trade secrets. Under extraordinary circumstances, the DTSA authorizes ex parte seizure of “property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” In addition to this new extraordinary remedy, the DTSA allows injunctions, damages, disgorgement of ill-gotten gains, and a multiplier (double the penalties for “willful or malicious” misappropriation). In addition, under the DTSA, courts are authorized to award attorneys’ fees either against a defendant who willfully or maliciously misappropriated or against a plaintiff who brought a trade secret claim in bad faith.

To get the full range of relief, employers must now modify their Trade Secret or Non Disclosure Agreements. The DTSA requires employers to give employees notice that they will not violate the law or their NDA if they disclose confidential information “in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney and solely for the purpose of reporting or investigating a suspected violation of law” or “in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”  The individual must also be advised that the information can be disclosed in connection with a retaliation lawsuit, if the information is filed under seal and is not disclosed except pursuant to court order. The employer’s notice can be contained in the trade secret agreement itself or in the employer’s policy.  If in a policy, the policy must be specifically referenced in the agreement and should be readily available to the employee.

Failure to include the notice will not prevent a business from protecting its trade secrets. It will, however, prevent the employer from recovering punitive damages and attorney’s fees in an action seeking to recover for misappropriation of trade secrets.

If you have Trade Secret or Non-Disclosure Agreements, it would be a good idea to review them and assure that they fully comply with the DTSA.

Note, this article was co-authored with Margaret Grover.