New Federal Law Protects Trade Secrets But Also Requires Changes to Employee and Contractor Agreements 05/05/2016

By: Sandra E. Kahn

It is expected that President Obama will soon sign into law the Defend Trade Secrets Act of 2016 (DTSA), which creates a new federal civil cause of action for trade secret theft.  While claims for trade secret theft may still be brought under the various state laws which protect intellectual property, this new law will provide uniform protection on the federal level.

The DTSA defines trade secrets consistently with the Uniform Trade Secrets Act (UTSA), and applies broadly to any trade secrets “related to a product or service used in or intended for use in, interstate or foreign commerce.”  Along with the ability to bring a lawsuit to fight trade secret theft and pursue equitable remedies and the award of damages for the misappropriation of a trade secret, the DTSA also includes a provision for expedited relief on an ex parte basis to prevent the dissemination of misappropriated trade secrets, which may be obtained under “extraordinary circumstances.”

The DTSA also provides protection for whistleblowers, granting immunity to  parties who, under certain circumstances, disclose a trade secret to the government or an attorney to report wrongdoing, or as part of an anti-retaliation lawsuit.  Of particular interest to our clients is the requirement that employers must now provide a notice of this immunity protection in any contract or agreement with an employee (or an independent contractor or consultant) that governs the use of a trade secret or other confidential information.    If this notice is not included in all contracts which are signed or revised after the effective date of the act, the employer will not be able to recover exemplary damages and attorneys’ fees under the DTSA (although the employer may still pursue any available damages under other causes of action).  Employers are advised to consult with their counsel to revise all agreements with employees and contractors in order not to run afoul of this requirement.

The DTSA, by itself, may not be used to prevent a departed employee from entering into a new employment relationship with a competitor, and provides that any conditions placed on such employment must be based on “evidence of threatened misappropriation and not merely on the information the person knows,” in effect rejecting the doctrine of inevitable disclosure.