The Defend Trade Secrets Act of 2016: What Businesses Need to Know
by Mandy Hicks
For many companies, the methods of how products are created and what formulas are used to do so are integral to the company’s work. These are trade secrets, and every state’s laws on how to handle violations of trade secrets are different. For companies that deal across state lines – and that’s nearly everyone – this has been extremely complex. Determining which state’s laws apply is difficult when disputes arise.
The Defend Trade Secrets Act of 2016, now signed into law, is designed to alleviate these problems. For businesses with intellectual property to protect, this is an important law that’s going to make a difference in how well corporations can protect property. This law provides a new way to seek relief for actual and threatened trade secret misappropriation nationwide under a uniform set of statutory provisions. If you’d like to read the text of the law itself, you can do so here.
A company has three years from the date of the alleged violation to seek recovery under the Defend Trade Secrets Act. Damages can include compensatory damages, exemplary damages, and attorneys’ fees.
A quick point that you don’t want to miss: if you run a business, you need to update your employee handbook to reflect this new law, specifically the portion concerning immunity described at the end of this document. If you do not provide notice to your employees of this change in the law, your recovery of damages under the act will be limited. These new changes apply to contracts and agreements that are entered into after May 11, 2016 or updated after that date.
The Act provides a uniform set of regulations and guidelines making it easier to avoid the differences that arise when looking at multiple states and their laws. Also, the act makes it possible to bring an action against foreign entities, an increasing threat to U.S. businesses.
The Defend Trade Secrets Act does not preempt state law nor does it preclude these types of claims from being brought in state court. However, it does provide original jurisdiction to the Federal District Courts to preside over these cases when necessary. This new law does require that the good or service in question is involved in interstate or foreign commerce.
Under extraordinary circumstances, this law allows for a civil seizure of property, if that is the only way to prevent the misappropriation of the trade secret. This is on an “ex parte” basis, meaning the seizure is to benefit one party.
The person or company seeking this seizure must meet several requirements:
- The applicant must meet the high burden of proof that the seizure is necessary. They must prove that immediate and irreparable injury will occur. The potential for harm without the seizure is greater than the need to protect the adverse party or any third parties that might be harmed.
- The applicant must be able to show that the information is a trade secret, and the adverse party misappropriated or plans to misappropriate the trade secret using inappropriate means.
- The applicant must show that the adverse party has possession of the trade secret.
- The applicant must specifically describe the item and location of the item to be seized.
- The applicant must describe the expected harm to the trade secret, like destruction or removal, if not seized.
- The applicant may not publicize the requested seizure.
- The applicant must have no other alternative that would sufficiently prevent the misappropriation of the trade secret.
The Defend Trade Secrets Act allows for injunctive relief to prevent any actual or threatened misappropriation of trade secrets. With a few limitations, this injunctive action can be against former employees.
Injunctions cannot “prevent a person from entering into an employment relationship.” To allow an injunction to place conditions on a former employee’s future employment activities, there must be evidence of a threat of misappropriation of trade secrets.
An employee is immune from liability for confidential disclosure of trade secrets in several situations. Under this act, employees include contractors or consultants who work with the company.
Employees are immune when disclosing trade secrets to a government official or to an attorney for the purpose of investigating a suspected violation. The immunity applies if the disclosure occurred in a complaint or other litigation-related filing that is made under seal. If involved in a lawsuit concerning retaliation by an employer for disclosing trade secrets, the employee may disclose the trade secret to his or her attorney, but any documents with trade secret information must be under seal and only released under court order.