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DTSA Expands Federal Protections for Confidential Business Information

May 13, 2016

On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”), significantly expanding the federal government’s role in protecting confidential business information, and imposing new notice requirements on employers. The DTSA enjoyed nearly unanimous support in Congress and reflects a growing concern about the increasing economic impact of trade secret misappropriation in the United States. 

Before the DTSA, trade secrets issues were typically handled at the state level and decided under varying state statutory schemes. This approach sometimes led to inconsistency and unpredictability. Effective immediately, trade secret owners can bring their misappropriation claims in federal district courts, which promises to bring more uniformity and stability to trade secrets law. Federal courts will now also have supplemental jurisdiction over many contract and employment disputes that were previously decided by state courts. 

The DTSA expands the protections and remedies available under most state trade secret laws in a number of important ways. First, the act expands the definition of a “trade secret” to include nearly any independently valuable information that is not readily ascertainable and which an owner has taken reasonable steps to protect. The DTSA also provides for injunctive relief and the recovery of actual damages arising out of misappropriation of a trade secret. In the case of “willful and malicious” misappropriation, a court can award exemplary damages, up to twice the amount of actual damages suffered by the employer. The DTSA also allows for the recovery of attorneys’ fees. 

Perhaps the most significant new remedy available under the DTSA is the possibility of ex parte property seizures. For the first time, the DTSA establishes a process for employers to ask the federal government to seize misappropriated trade secrets without providing advanced notice to the defendant. This is an extremely powerful tool for protecting confidential business information and is not available under any other state statute. The remedy is designed to avoid litigation delays and to stop the dissemination of trade secret information before it loses its value through disclosure.

Notice Requirements for Employers

Importantly, the DTSA also imposes new notice requirements on employers. The act provides whistleblowers immunity from civil or criminal liability for disclosures made to federal, state, or local authorities “solely for the purpose of reporting or investigating a suspected violation of law.” The act also provides immunity for the disclosure of trade secret information in legal proceedings. Employers now have an affirmative obligation under the DTSA to disclose these immunity provisions in any “contract or agreement with an employee that governs the use of a trade secret or other confidential information.” This extends to confidentiality agreements with independent contractors and consultants. 

To comply with these new notice requirements, an employer’s confidentiality agreements may provide “a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.” However, failure to provide the required contractual notice makes several of the statutory remedies—including exemplary damages and attorneys’ fees—unavailable in subsequent litigation.

The DTSA is a powerful new tool for protecting your company’s confidential business information. To discuss questions about the new legislation and to ensure your company is in compliance with the DTSA, please do not hesitate to contact a member of Varnum’s Labor and Employment Practice Team.

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