DEFEND TRADE SECRETS ACT OF 2016

The following is a memo of law prepared by our office for our attorneys summarizing the new federal law regarding trade secrets. It is written with more legal jargon than I usually put in a blog post, but despite that, it gives a good bullet point summary of this law.

• Enacted May 2016 to provide federal civil claim for misappropriation of trade secrets
• Federal civil claim may be brought for misappropriation of a trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce.
• Definitions
  • Trade secrets are defined by DTSA to include: “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.”
  • Misappropriation generally includes: “the acquisition of a trade secret by improper means, disclosure or use of a trade secret by a person who had reason to know that the trade secret was acquired by improper means or under circumstances giving rise to a duty of secrecy, or disclosure or use of a trade secret by a person who had reason to know it was disclosed by accident or mistake.
    • Improper means may include theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.
    • Improper means does not include reverse engineering, independent derivation, or any other lawful means of acquisition.
  • Ex Parte Seizure of Trade Secrets
    • Upon a showing of extraordinary circumstances, a trade secret owner can request a short term ex parte seizure to prevent propagation or dissemination of materials which a person has actual possession
    • Applicant must allege:
      • Standard TRO inadequate because party would evade, avoid or otherwise not comply
      • Immediate and irreparable injury
      • Harm in denying outweighs harm to others
      • Likely to succeed on claim
      • Matter to be seized described with “reasonable particularity” and location identified
      • Person subject to order would destroy, move, hide, or otherwise make such matter inaccessible to court if notice were provided
      • Requested seizure has not been publicized by applicant
    • Seizure order shall:
      • Findings of Fact & Conclusions of law
      • Provide for the narrowest seizure of property to minimize interruption of business operations to third parties or of person accused
      • Accompanied by order protecting seized property from disclosure by restricting access of applicant and prohibiting copies
      • Provide guidance to law enforcement to carry out order
      • Set hearing within seven (7) days
      • Require security/bond
    • All materials seized by law enforcement are retained by court
    • Hearing must be held within 7 days
    • Motion to modify/dissolve order may be filed at any time, by any person harmed by order
    • Wrongful/excessive seizure may give rise to cause of action against applicant for damages including punitive damages and attorneys fees.
  • Remedies
    • Injunctive relief
      • Bar disclosure or condition future use of the trade secret upon payment of royalty
    • Damages
      • Actual loss and any unjust enrichment
      • In lieu of other damages, reasonable royalty for use of trade secret
    • Attorney Fees and Exemplary Damages for Willful and Malicious Misappropriation
  • Whistleblower Protections for Employees
    • Employees means both contractors and consultants doing work for employer
    • Two Scenarios
      • Individual disclosed trade secret in confidence directly or indirectly to federal, state, and local gov’t officials or to a lawyer and did so solely for the purpose of reporting or investigating a suspected violation of the law;
      • In the context of a document filed in court under seal;
      • In anti-retaliation lawsuits, as long as only to that person’s lawyer, filed under seal, not disclosed except by court order
    • Notice requirement
      • Employers must provide notice of immunity in any contract or agreement with an employee that governs the use of a trade secret or other confidential information
      • Applies to all such contracts entered into or updated after date of enactment
      • Failure to comply may not be awarded exemplary damages or attorneys fees in an action against an employee to whom notice was not provided.
    • Statute of limitation is 3 years from discovery or when it should have been discovered with reasonable diligence.