What All Businesses Must Know About The New “Defend Trade Secrets Act”

The signing on May 11, 2016 of the Defend Trade Secrets Act (“DTSA”) by President Obama has elevated trade secrets to a level on par with the other three categories of intellectual property, i.e., patents, trademarks and copyrights, by providing a Federal cause of action for trade secret misappropriation.

A New Law Means New Rules
Prior to the DTSA a victim of trade secret misappropriation, also called trade secret theft, had to resort to a disparate patchwork of State laws adopted from each State’s version of the Uniform Trade Secrets Act (UTSA). Although 48 states had adopted some version of the UTSA the States of New York and Massachusetts, two states where many high tech companies are located, had not. Thus, the enactment of the DTSA is of utmost significance.

The most significant features of then DTSA can be summarized as follows:

  • The DTSA provides for the recovery of actual damages, restitution, injunctive relief, exemplary relief up to two times the actual damages and attorney’s fees.
  • Ex parte (without prior notice) property seizures are available, but with some limitations.
  • The statute of limitations is three years which means a civil action must be commenced no later than 3 years after the date from which a misappropriation was discovered or by the exercise of due diligence should have been discovered.
  • The DTSA contains an immunity provision to protect individuals from criminal or civil liability for disclosing a trade secret if it is made in confidence to a government official or to an attorney for the purpose of reporting a violation of the law. This provision places an affirmative duty on an employer to provide notice of the immunity provision to any employee (defined broadly to include contractors and consultants) in any contract or agreement governing the use of trade secrets or confidential information. If an employer does not comply with the notice provision then the employer may not recover exemplary damages or attorney fees in an action brought under the DTSA. THUS, IT IS IMPORTANT THAT ALL BUSINESSES REDRAFT THEIR AGREEMENTS TO PROVIDE NOTICE OF THIS IMMUNITY PROVISION.
  • The DTSA increase the penalties for a criminal violation of 18 U.S.C. § 1832 from 5 million to the greater of $5,000,000 or three times the value of the stolen trade secrets to the organization, including the costs of reproducing the trade secrets.

Trade Secrets Now A Federal Matter
In summary and conclusion, the DTSA allows a party to now sue in Federal Court for trade secret misappropriation to seek actual damages, restitution, injunctive relief, ex parte seizure, exemplary damages, and attorney’s fees. Thus, all businesses should have experienced intellectual property attorneys redraft their employment and other agreements to comply with and take full advantage of the DTSA as trade secrets now join the other three intellectual property types – patents, trademarks, and copyrights – in Federal Court.