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President Obama Signs Bipartisan Bill Creating Federal System Of Trade Secrets Law

5/12/16

By: Mike Wolak and Amanda Cash

On May 11, 2016, President Obama signed the Defend Trade Secrets Act (“DTSA”) into law.  The DTSA is intended to create a more predictable, nationwide body of trade secrets law through a single federal statute.  The new law, which overwhelmingly passed both houses of Congress, will give companies a direct path to federal court as a plaintiff.  Until now, employers and businesses had to bring trade secrets claims under state law, which often presented disadvantages for large employers operating in multiple states.  The DTSA creates a federal cause of action that, for the first time, gives federal district courts original jurisdiction over trade secret disputes, including contract and tort claims that are currently asserted under state laws.  Companies can now consolidate their claims and file directly in federal court, which many argue is better equipped than state court to handle the often complex and highly technical aspects of trade secret cases.  This is important for employers who face daunting hurdles in protecting their trade secrets, especially given the constantly increasing risks associated with technological advances and cyber security issues.  It is important to note that the DTSA does not preempt state law, but will co-exist with state trade secret laws.

Employers must also be cognizant of the DTSA’s other important provisions, such as the following:

• The DTSA Seizure Clause:  The DTSA allows trade secret owners, including employers, to make ex parte applications to a court for an order seizing property necessary to prevent dissemination of trade secrets.  This provides employers with a mechanism to forcefully recover trade secrets from alleged misappropriators, without a hearing or answer from the accused.  The DTSA limits this “extraordinary remedy” to situations where a request for a temporary restraining order or preliminary injunction would be inadequate.  Employers should pursue this remedy with extreme caution, however, and ensure they possess the requisite evidence to warrant such a seizure.  A wrongful or excessive seizure can support a claim against the trade secret owner for damages, including lost profits.
• Whistleblower Immunity.  The DTSA provides a safe harbor in the form of civil and criminal immunity to those who disclose trade secrets to the government to investigate potentially criminal activity.  The DTSA thus requires that employees be notified of their right to disclose trade secrets as part of government investigations.  This notice must be provided in any contracts or employment agreements that govern the use of trade secrets or confidential information.  Rather than merely inserting the DTSA’s language into future employment contracts, employers should ensure they have policies for handling confidential information and whistleblower policies that are made available to employees.  Furthermore, without this express notice to employees, employers will not be permitted to recover punitive damages or attorneys’ fees if they pursue trade secret theft claims.  Finally, employees must also be advised that they are permitted to turn over confidential information to their attorneys or to the court in a retaliation suit, so long as the disclosure is made under seal.

The DTSA contains a number of critical changes to trade secret law that employers need to be aware of.  The DTSA gives employers unique opportunities to protect trade secrets in federal court and to employ forceful mechanisms to prevent dissemination.  Employers, however, must also be aware of the compliance requirements and limiting provisions of the DTSA, including the communication of certain whistleblower rights to employees, the consequences of a wrongfully implemented seizure, and the provisions aimed at preventing injunctions that unfairly restrict employee mobility.

For more information, please contact Mike Wolak at [email protected] or at 770.303.8638.