Client Alert: New Federal Trade Secrets Law Brings Major Implications for Trade Secret Owners and Their Employees

On May 11, 2016, President Obama signed the Defend Trade Secrets Act into law.  The Act amends the existing Economic Espionage Act, but more importantly, it creates for the first time a federal civil cause of action to protect trade secrets.  The Act not only allows trade secret owners to bring suit in federal court but also maintains existing state systems such that a trade secret owner may now assert both federal and state law claims against alleged violators. 

The most significant part of the Act allows for ex parte civil seizure of misappropriated trade secrets, a remedy available in “extraordinary circumstances,” when 1) equitable relief would be inadequate because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order; 2) an immediate and irreparable injury will occur if such seizure is not ordered; and 3) the harm to the applicant of denying the application outweighs the harm to the person against whom seizure would be ordered and substantially outweighs the harm to any third parties who may be harmed by such seizure.  Among other requirements, the applicant must show it is likely to succeed in demonstrating that 1) the information is a trade secret; and 2) the person against whom seizure would be ordered misappropriated the trade secret or conspired to misappropriate the trade secret.  

In addition to the ex parte civil seizure, the Act provides for injunctive relief and damages in the form of actual loss caused by the misappropriation and unjust enrichment that is not addressed in computing damages for actual loss.  An alternate damages option includes a reasonable royalty for the violator’s unauthorized use or disclosure of the trade secret.  Damage amounts may be doubled if the misappropriation was willful and malicious, and attorneys’ fees are also available in certain circumstances.

The Act also impacts employment law because it contains a requirement that all employment agreements containing confidentiality provisions have a notice provision that the employee has immunity from civil and criminal liability for disclosure of trade secrets made 1) in confidence to a government official or to an attorney with the purpose of reporting or investigating a suspected violation of law; or 2) in a complaint or other document filed in a proceeding if such filing is made under seal.  An employer can also meet the notice requirement by providing a cross reference in any policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.  If an employer fails to follow the notice requirements, its damages against employees under the Act will be limited.

The Act recognizes the importance of trade secrets in the United States and provides a valuable new tool for trade secret owners, including, but not limited to, the opportunity to bring an additional civil cause of action in federal court.  The Act also serves as a reminder to all employers of the importance of trade secrets and the necessity of making sure trade secrets are identified and properly secured such that they will be entitled to all trade secret protections in the event of misappropriation.  All employers will also need to revisit their current employment agreements and policy handbooks to provide for proper notice required under the Act. 

We will continue to monitor the effects of the new Act.  Please contact Mindi Richter for more information or assistance on these issues.