ALERT - New Employment Law Enacted: The Defend Trade Secrets Act Of 2016

Volume 15, Issue 9
June 1, 2016

On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 ("DTSA") which gives businesses the right to pursue a claim in federal court for trade secret misappropriation and recover trade secrets that have been stolen.  The DTSA also requires employers to provide certain notices to employees and contractors who have entered into confidentiality, trade secret or non-compete agreements. The law became effective upon the President's signature.

What Does the DTSA Do?

First, this law provides "an owner of a trade secret" the right to file a lawsuit in federal court if a trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce, is misappropriated. A federal court can enter an order preventing the actual or threatened misappropriation or requiring a person to take affirmative actions to protect the trade secret. In "exceptional circumstances" where these remedies are not sufficient or appropriate, the court can alternatively condition "future use of the trade secret upon payment of a reasonable royalty." The court can also award monetary damages to the owner of a trade secret that has been misappropriated by awarding the owner the amount of its actual losses, as well as the amount the wrongdoer obtained because of the theft and/or a reasonable royalty for the unauthorized use of the trade secret. In some cases, if the misappropriation is willful and malicious, capped punitive damages are permitted as well as attorney's fees to the prevailing party.

Second, the DTSA provides an owner of a trade secret with a mechanism to recover the trade secret via a "civil seizure." Under the law, in "extraordinary circumstances," a federal court has the ability to issue an order "providing for the seizure [by a federal law enforcement officer] of property necessary to prevent the propagation or dissemination of the trade secret."

Third, the law provides protection to whistleblowers who may confidentially disclose a trade secret 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 document filed in a "lawsuit or other proceeding, if such filing is made under seal." As a result, employers who have entered into confidentiality, non-compete or trade secret agreements with their employees/contractors now have an affirmative obligation to provide notice of these whistleblower protections to those employees/contractors.

What Actions Should Employers Take?

With the implementation of the DTSA, employers need to address its provisions in their existing and future employment agreements. Specifically, if your company or organization uses contracts or agreements that address topics such as confidentiality, non-competition and trade secrets, such agreements need to be updated to include the whistleblower protections provided under the DTSA. Please contact a KZA attorney for assistance in addressing this new requirement.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.