The Defend Trade Secrets Act Requires Employers to Comply With Notice Requirement to Reap the Remedies
On May 11, 2016, the President signed the Defend Trade Secrets Act of 2016. The Act has three components: 1) creates a federal cause of action for trade secret claims; 2) grants whistleblower protections to employees; and 3) enables seizure of trade secrets.
Trade Secret Disputes Are Now Federal Causes of Action
Historically, all trade secret disputes had to be brought under state laws. District courts now have jurisdiction over trade secret disputes, including contract and tort claims. The Act does not preempt non-compete state laws.
The Act has a variety of remedies that the plaintiff can recover in federal court. The Act permits plaintiffs to receive an injunction to prevent a person from entering into an employment relationship. The court may place conditions on employment when shown evidence of a substantial threat of trade secret misappropriation that will hurt the former employer. In the event that an injunction is inequitable, the court may order that future use of a trade secret is conditioned on payment of royalties. Employers are awarded exemplary damages, no more than two times the amount of damages awarded, and attorney’s fees when the trade secret is willfully and maliciously misappropriated. However, trade secret misappropriation claims should not be made in bad faith. If an employer makes a claim of misappropriation in bad faith, the prevailing party may be awarded attorney’s fees.
The Act provides criminal and civil immunity to employees that disclose a trade secret to the government or an attorney. However, employees may disclose a trade secret only for the sole purpose of reporting or investigating a suspected violation of the law. Employees may disclose a trade secret in a complaint or other document filed in a lawsuit, only if it is filed under seal.
Employers should give employees notice of immunity within any contract that governs the use of a trade secret or other confidential information. The contracts may reference a confidentiality or trade secret policy instead of including immunity language within every confidential and trade secret contract. It is vital to give employees notice of immunity because employers will not be eligible for exemplary damages or attorney’s fees without notice to the employees.
The Seizure of Trade Secrets
Employers may ask the court to order law enforcement officials to seize any property to prevent the propagation or dissemination of a trade secret. The courts can order a seizure of the property ex parte
, which means only one party communicated with the judge. The court will issue an order of seizure in extraordinary circumstances. The Act requires employers to have convincing evidence that the trade secret has been misappropriated. If the employer is wrong about the trade secret misappropriation and the court orders the seizure, the individual or company subject to the seizure may file a lawsuit to recover damages due to the seizure. The individual or company may sue for loss of profits.
Compliance in the Wake of the Defend Trade Secrets Act
There are two steps employers should take to comply with the Act. First, employers should examine any contract with an employee with access to trade secrets or confidential information and add immunity language. Second, employers should update the confidential information portion of their employee handbook to reflect the Act’s notice requirement. Employers should seek legal advice from counsel before developing or changing policies or contracts to comply with the Act.
Congress is continuously developing new laws and regulations that you must comply with. This Act is to the benefit of employers and aids in the protection of precious trade secrets. The Defend Trade Secrets Act should not be overlooked.
For more information on the Defend Trade Secrets Act, contact Demetrice Allen
or a member of our Labor, Employment and Immigration
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.