The Defend Trade Secrets Act by Daniel A. Kaplan

Posted on 10-25-2016 by
Tags: defend trade secrets act , Lexis Practice Advisor , trade secrets

In 2016, the federal government enacted the Defend Trade Secrets Act (DTSA), which amends the Economic Espionage Act of 1996. See 18 U.S.C. § 1831 et seq. As discussed below, the DTSA provides employers a new weapon in their litigation arsenals for combatting trade secret theft. But, to avoid neutralizing this weapon, employers must provide notice of the DTSA’s protections to employees.

The DTSA created a new federal cause of action. The DTSA provides a federal civil right of action for employers and others for trade secret misappropriation. 18 U.S.C. § 1836(b)(1). Previously, those injured by trade secret theft could generally look only to state law for redress.

The DTSA offers a variety of remedies for trade secret theft, including injunctive relief, damages, double damages for willful and malicious misappropriation, and attorney’s fees. 18 U.S.C. § 1836(b)(3). It also makes a short-term, ex parte court order available to seize stolen trade secrets and retain them in court custody pending a hearing (which must be held within seven days). 18 U.S.C. § 1836(b)(2). This is a powerful remedy that allows employers to promptly divest a current or former employee of confidential business information taken without authorization, thereby limiting the damage an employee might do with the trade secrets.

Employers must disclose carve-outs to trade secret protection. Importantly, the DTSA also requires employers to make certain disclosures in any employment contract “that governs the use of a trade secret or other confidential information” entered into or updated after May 11, 2016. 18 U.S.C. § 1833(3)(A). Specifically, an employer must disclose that an individual is immune from liability for disclosing a trade secret as follows:

  • In confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law or in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal
  • To the individual’s attorney or the court in a retaliation lawsuit if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to a court order

18 U.S.C. § 1833.

Failure to make these disclosures about the DTSA’s immunity for whistleblowers and use of a trade secret in a litigation bars an award of exemplary damages and attorney’s fees against an employee who did not receive the disclosures. 18 U.S.C. § 1833(b)(3)(C). Accordingly, employers should ensure that they notify employees that they will not be liable for trade secret misappropriation in the above circumstances in any new employment agreements, as well as agreements or employment policies dealing with confidentiality or trade secrets.

Daniel A. Kaplan is a partner and litigation attorney with Foley & Lardner LLP. Mr. Kaplan counsels employers in all aspects of the employer-employee relationship, including wage and hour, employment contracts, confidentiality and non-compete agreements, family and medical leave, disability accommodations and compliance with the Americans with Disability Act, and all state, federal, and local discrimination laws.

For More Information

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