DALLAS/FORT WORTH214.614.6999 DENVER720.863.4012 HOUSTON713.936.9620 SAN ANTONIO210.890.4684 WYOMING307.226.2066

Federal Trade Secret Protection Under the New Defend Trade Secrets Act of 2016

A bipartisan congress has passed (87-0 in the Senate and 410-2 in the House of Representatives) and the President has now signed the Defend Trade Secrets Act of 2016, (the “DTSA”). As of May 11th, 2016, misappropriation of trade secrets is now subject to federal civil remedies, in addition to the already existing criminal penalties and state court civil and criminal remedies. The Texas Uniform Trade Secrets Act, enacted in September, 2013, can be found here.

In high tech businesses where technology evolves often faster than patents can issue, trade secrets are an increasingly valuable asset and strategy to protect ideas and maintain a company’s value. Such are assets which, generally until now, could only be protected by filing actions in state courts. Previously, if federal court was the preferred venue, a party would have to find additional causes of action that would allow for federal court jurisdiction. Now, misappropriation of trade secrets can stand alone, like patent, trademark, or copyright infringement, as a matter appropriately brought in federal court.

Many states have inconsistent treatment of trade secrets, adopting at various times and in various forms the Uniform Trade Secrets Act over the years. These inconsistencies occur not just in remedies, but also in what can and cannot be defined or held out as a trade secret, as well as protections for employees, or the imposition of constructive knowledge of trade secrets upon employers. Importantly, the new federal law changes that by bringing legal consistency as well as venue options, especially in cases where party diversity can be a strategic advantage and federal court is a more appropriate venue in obtaining and enforcing a judgment.

Some highlights of the new law include:

  • The DTSA will allow for standard and extraordinary remedies, such as injunctive relief and money damages. As expected, injunctions can be limited so as to not “prevent a person from entering into an employment relationship,” as such would punish new employees for knowledge they merely possess. Rather, there must be evidence of threatened or the evidenced possibility of misappropriation.
  • Generally, a court can now, upon a verified evidentiary showing under extraordinary circumstances, issue orders for the seizure of “property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”
    • As is typical in any extraordinary relief regarding sensitive and confidential information, the party requesting the seizure will also be required to, for example, post security bonds; however, that party also runs the risk of being exposed to damages from the accused party for “a wrongful or excessive seizure or wrongful or excessive attempted seizure….”
  • The DTSA provides some limited whistle blower immunity when a disclosure is made “in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and … solely for the purpose of reporting or investigating a suspected violation of law; or … is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
    • Importantly, employers are now required to provide a notice-of-immunity to employees and contractors “in any … [employment or independent contractor] agreement … that governs the use of a trade secret or other confidential information.”
    • Given the above, an employer must now state that employees and independent contractors cannot be held criminally or civilly liable for trade secret disclosures made in confidence to government officials or to an attorney for the sole purpose of reporting suspected or investigating potential legal violations.

If you are in business, then you have trade secrets. You have prospective and actual client lists, preferred vendor and supplier relationships, customized operating procedures, or other methods, technologies, or ideas that your business created and uses as competitive advantage in the market. At KMD, we can assist you in drafting the proper contractual agreements, notices, and relationships with your employees, independent contractors, trade partners, and vendors to ensure your secrets are properly held out as secrets, as well as protected and enforceable under the law, state and now federal. As always, reach out to us at your convenience with any questions or concerns.