On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA) which brought with it a new era of accountability and expediency in protecting employers’ intellectual property. Whether proprietary lines of code in a software program, the secret recipe for fried chicken or highly-valued customer lists, “trade secrets” provide a competitive advantage for businesses. While the DTSA provides new avenues for employers to protect their trade secrets, it also imposes additional burdens, creating new whistleblower protections and imposing new notice requirements.
One of the DTSA’s major benefits is that it provides employers with the option to pursue civil misappropriation of trade secret cases in federal court if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. Until the passing of this law, trade secrets were regulated solely by state laws, which made it incredibly difficult and time consuming to prosecute misappropriation when the theft occurred across state lines or international boundaries. Under the DTSA, the employer still has the burden to establish that the material at issue constitutes trade secrets, meaning that the employer must show that it employed “reasonable measures” to protect the material.
The DTSA includes whistleblower protections that provide immunity for employees and other individuals who report thefts confidentially to the government or an attorney. If an employee claims retaliation for reporting a suspected trade secrets theft, that employee may disclose the trade secret to his or her attorney and use the trade secret in court, provided that such documents related to the trade secret are filed under seal and the employee does not disclose the trade secret except pursuant to court order.
Employers are required to give notice to employees (which includes contractors and consultants) about DTSA’s whistleblower immunity provisions in any contract that governs the use of trade secret or other confidential information that is entered into after the enactment of the DTSA. Employers may comply with this requirement by including a cross-reference in the agreement to a written policy that fully explains the DTSA’s immunity provisions. If an employer fails to provide the requisite notice, it may not be awarded exemplary (punitive) damages or attorneys’ fees for any action brought under the DTSA.
DTSA provides various forms of remedies, including damages, injunctive relief, and even royalty structures for future use of the trade secret in cases where an injunction would be inequitable. Notably, a court may NOT grant an injunction that prevents a person from entering into an employment relationship or that otherwise conflicts with applicable state law prohibiting restraints on employee mobility.
Most companies with trade secrets and other critical business proprietary information have implemented some degree of security and limited access to that data. If you desire to have your company assessed for exposure of secrets, their likelihood of being stolen or your ability to enforce your rights under DTSA, feel free to contact us.
How significant of a problem is trade secret theft?
According to the Commission on the Theft of American Intellectual Property, American companies have suffered trade secret attacks by domestic and foreign culprits to the tune of $300 billion a year.
What steps should employers take now to comply with the DTSA?
In order to comply with the DTSA’s notice requirements to employees, employers should revise any employment agreement that addresses trade secret or confidential information to either: (1) include information regarding whistleblower immunity for employee’s confidential disclosure of trade secret information; or (2) cross-reference a policy that includes such information. Employers also are wise to update (1) whistleblower policies; (2) non-disclosure agreements; (3) trade secrets policies and procedures; and (4) contractor agreements.
How do I know if our company has taken reasonable measures to protect it trade secrets?
An employer should analyze the following to determine whether it has acted reasonably to protect trade secret information in order to benefit from the DTSA:
- How are our trade secrets currently protected?
- Do we allow hard or soft copies of any trade secrets to be maintained at employees’ homes?
- Is data allowed to be downloaded onto local drives on employee laptops?
- How are our trade secret documents marked?
- How is on-line access managed?
- Are employees (including consultants and contractors) and other business partners required to sign non-disclosure agreements?
- How do we manage the use of thumb drives?
- How is access to our system monitored both during and after employment?
- What is our “bring your own device” (BYOD) to work policy?
MSK attorneys are experienced in drafting policies and agreements to assist employers in establishing reasonable measures to protect trade secrets. Please let us know if we can be of assistance in preparing or updating your documents.
Thanks to my colleague Brett Thomas for co-authoring this article with me.