New Trade Secrets Law Expands Employers’ Rights

Congress proved they are still occasionally capable of bipartisanship in passing the Defend Trade Secrets Act (“DTSA”). The DTSA was passed with near unanimous Congressional approval and was signed into law by President Obama last month.  The DTSA is the first federal private cause of action for the misappropriation of trade secrets.

How DTSA Differs From Minnesota Law

Until now, companies relied on state laws to defend and protect their trade secrets. The new DTSA does not preempt existing state trade secret laws; it merely supplements them.  The DTSA now affords companies the ability to bring a lawsuit in federal court and provides a more uniform legal framework on how to litigate trade secret claims across the country.

While the DTSA is a new law, it borrowed heavily from existing laws. The DTSA largely adopts Minnesota’s Uniform Trade Secrets Act’s definition of a trade secret; however, the key difference is under the DTSA, the trade secret must be “related to a product or service used in, or intended for use in, interstate or foreign commerce.”

DTSA Gives Companies Additional Remedies

One notable aspect of the DTSA is the additional remedies it provides companies pursuing trade secret cases. For example, the DTSA allows a business to obtain an “ex parte” seizure order from a judge, meaning that the company can obtain the order without any input or defense from the alleged trade secret thief if the order is “necessary to prevent the propagation or dissemination of the trade secret.”  This is a valuable tool to help quickly recover, and/or prevent disclosure of, trade secrets before they are disclosed.

Companies and federal courts, however, have strict requirements about when a seizure order should be entered. If a company wrongfully obtains a seizure order, that company may subject itself to liability, including a counter lawsuit for wrongfully seizing property.

In addition to seizure orders, the DTSA allows a court to order an injunction to prevent actual or threatened misappropriation of trade secrets, and award a prevailing party actual and unjust enrichment damages, as well as exemplary damages up to two times the amount that would be otherwise awarded. The DTSA similarly allows for the award of attorneys’ fees if a trade secret is willfully and maliciously misappropriated.

Employee Protections

Employers beware: The DTSA provides protections for employees too. While the DTSA allows an injunction that limits the type of work an employee could perform if there is evidence of an actual threat of misappropriation, the DTSA will not prevent an employee from obtaining general employment.  Employees also have whistleblower protection that allows them to report alleged illegal activity and disclose trade secrets, if necessary, in retaliation lawsuits.

In order to recover monetary damages and attorneys’ fees from an employee who violates a DTSA violation, companies must first notify employees, consultants, and contractors about these rights in employment agreements or, alternatively, in a written policy as long as there is a cross reference to that policy in the employment agreement. Such notice is required in every situation where the company owns and seeks to protect a trade secret as defined under the DTSA and applies to  all employment, consulting, and contractor agreements entered into after the enactment of the DTSA on May 11, 2016.

Bottom Line

The DTSA is a new federal law that supplements state law. It provides employers and employees with additional rights and obligations.  The DTSA has broad application and applies to all companies engaged in interstate or foreign business transaction.  Future employment, consulting, and contractor agreements should be reviewed by legal counsel to confirm compliance with the DTSA.