The Defend Trade Secrets Act of 2016: Important Information About Protecting Trade Secrets

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Recently, I wrote about non-compete agreements, the enforcement of which are subjective, from judge to judge and even from state to state. In the article, I discussed some of the factors that may lead a court to determine whether a non-compete agreement is reasonable under the circumstances and when one is not.

Far less problematicand controversialis a company’s right to protect its trade secrets; almost everyone would agree that a company has a legitimate interest in doing so. One way to try and accomplish this is to include clauses in employment agreements prohibiting an employee from disclosing trade secrets, about which they learn during their employment. A company’s interest in protecting its trade secrets was recently acknowledged by the passage of the Defend Trade Secrets Act of 2016 (the “DTSA”), a federal statute that was signed into law in May 2016.

The new statute enhances a company’s efforts to protect its trade secrets by strengthening the remedies that may have been previously available. For example, the DTSA allows a company to seek a court order “providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” Further, the statute would entitle a company whose trade secrets have been misappropriated the rights to injunctive relief; and an award of damages for the actual loss caused by the misappropriation and for any unjust enrichment that results, or liquidated damages; if the trade secret is willfully and maliciously misappropriated, exemplary damages and attorney’s fees.

Proceeding under the DTSA, however, does come with some peril. The statute provides that a person who suffers damage “by reason of a wrongful or excessive seizure” has a cause of action against the applicant for the seizure order. Further, the statute provides for an award of attorney’s fees to an employee or third party who prevails against the company if it is found that the claim of misappropriation was made in bad faith.

In order to enforce the act and seek the penalties described above against an employee, an employer must provide notice to the employee, in the employment contract that addresses trade secrets or an appropriate policy document, that she will not be held liable for the disclosure of a trade secret that “(A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”

The takeaway for employers and practitioners is simple: If an employer would like to take advantage of the protection that the DTSA affords in the future, it is critical for that employer to review the employment agreements that provide for trade secrets protection and modify them to include the required language. Also, when considering to make a claim under the DTSAand this should go without saying—the employer and its attorneys should strongly consider any evidence that can support a claim, and any evidence to the contrary, since, if it is found that the claim was brought in bad faith, an employer could be liable to the opposing party for her reasonable attorney’s fees.

Bart J. Eagle
Bart J. Eagle

Bart J. Eagle
Attorney & Mediator
1700 Broadway, 41st Floor
New York, New York 10019
(212) 586-0052

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