Published by Thompson Bukher - May 17, 2016 - Intellectual Property Law

On May 11, 2016, President Barack Obama signed into law the Defend Trade Secrets Act (DTSA).  The DTSA may be the most significant expansion of intellectual property law by the federal government since the Lanham Act (1946).

The DTSA seeks to reconcile varying state laws by providing a unifying federal framework.  Even more significantly, the DTSA provides federal jurisdiction to trade secrets theft civil lawsuits where previous actions were state-based. Finally, companies should note the significance of the DTSA’s new whistleblower employee notice requirements.

The Act’s details are as follows:

No State Law Preemption

While seeking to reconcile varying state laws on trade secrets theft, the DTSA does not preempt state laws already addressing trade secrets protection.  Instead, the DTSA provide a separate federal cause of action for trade secrets misappropriation that may be brought concurrently with any state law claims.

The DTSA’s language tends to conform, for the most part, with the Uniform Trade Secrets Act which has been adopted in every state but New York and Massachusetts.

Civil Remedies Expanded

The DTSA expands civil remedies for trade secrets theft to “the greater of $5,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the trade secret that the organization has hereby avoided.”  Additionally, equitable remedies, including seizure of misappropriated trade secrets, injunction on use, and a reasonable royalties are authorized.

Notably, exemplary damages of 2 times the amount of damages are authorized in cases of willful and malicious misappropriation.  As well, once an injunction has been granted under the Act, reasonable attorneys’ fees will be awarded to the prevailing party if a motion to terminate the injunction is made (or opposed) in bad faith.

Employee Whistleblower Notice Requirements, Non-Competes, and California Law

Significantly, the DTSA provides that employee whistleblowers are immune from civil and criminal liability for disclosures of trade secrets made “in confidence to a Federal, State, or local government official … or an attorney … solely for the purpose of reporting or investigation a suspected violation of law; or made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”

Even more significantly, employers must provide notice of the above immunity provision to their employees in their employment agreements or via an incorporated company policy document in order to take advantage of the exemplary damages provision in cases of willful and malicious misappropriation.

Finally, with respect to non-compete agreements and other restrictive covenants, the DTSA makes clear that an injunction may not be granted in connection with the Act where such an injunction would prevent a person from entering into an employment relationship.  Conditions on employment may, in certain cases, be ordered. However, any conditions placed on such employment “shall be based on evidence of threatened misappropriation and not merely on the information the person knows.” (Our emphasis.)

As well, DTSA injunctions may not be granted if they conflict with “applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”  Thus, arguably, California’s broad prohibition on non-compete agreements (Cal. Bus. & Prof. Code § 16600) may ultimately defeat most potential injunctive remedies under the DTSA once the courts weigh in on this clause.

Statute of Limitations

The DTSA’s statute of limitations period has been set to 3 years.

Contact

If you have questions about the Defend Trade Secrets Act, how to protect your confidential information, or how to defend against bad faith trade secrets claims, please contact Tim Bukher or any member of the Thompson Bukher Internet & Data Practice at (212) 920-6050.

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