New Federal Law Affords Employers with a New Way to Protect Their Valuable Trade Secrets

By Daniel Oberdorfer and Steven Katras

Today President Barack Obama signed into law the Defend Trade Secrets Act (DTSA), which passed the U.S. Congress last month. Under this new law, an owner of a trade secret may bring a civil action in federal court for the misappropriation of a trade secret that is "related to" a product or service used in or intended for use in interstate and foreign commerce. Claims under DTSA have a three-year statute of limitations. DTSA explicitly provides that it does not prohibit other claims, including claims under the various state misappropriation of trade secrets acts.

One of the more significant additions to currently existing trade secret law is that the DTSA allows plaintiffs in limited circumstances to obtain an ex parte seizure order (i.e., with no notice to the other side). The order would authorize law enforcement to seize the trade-secret instrumentalities to prevent further disclosure. This could include seizure of computer hard drives, external storage drives (USB drives) and smartphones. The statute provides a balancing test for when an ex parte seizure may be ordered and requires a showing that the person or persons responsible for the misappropriated trade secrets, or people acting in concert with them, would destroy, move, hide or otherwise make the data inaccessible to the court if notice were provided. It also requires the plaintiff to put up security to cover damages that may result from a wrongful or excessive seizure.

In addition to the ex parte seizure provisions, relief under the legislation includes an injunction, damages for actual losses caused by the misappropriation, damages for any unjust enrichment caused by the misappropriation, or a reasonable royalty for the alleged wrongdoer's unauthorized disclosure or use of the trade secret. If the misappropriation is found to be willful and malicious, an aggrieved party may be entitled to exemplary damages (up to two times the award of actual damages) and reasonable attorney's fees.

The definition of trade secret under DTSA is the same as is found in the Economic Espionage Act (EEA) and is similar to many state laws. Under the EEA, a trade secret must meet a two-part standard: (1) "the owner thereof has taken reasonable measures to keep such information secret"; and (2) the "information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public."

The law directs the court to protect the person against whom an ex parte seizure was ordered from publicity by the plaintiff who obtained the order.

It also provides immunity under state and federal trade secrets laws for disclosing trade secrets to the government as part of an investigation or for purposes of reporting a suspected violation of law. The DTSA requires employers to give notice of the immunity provisions in any contract or agreement with an employee that governs the use of trade secrets or other confidential information. In lieu of including specific notice, an employer may provide a cross-reference in the contract to a policy document provided to the employee that sets forth the employer's reporting policy for a suspected violation of law. The employer is not entitled to an award of exemplary damages or attorney's fees under DTSA if the required notice is not given.

If you have any questions about DTSA, or other issues related to non-competition law, please contact Daniel Oberdorfer, Steven Katras or the Stinson Leonard Street attorney with whom you regularly work.

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