Businesses Have New Tool to Protect Trade Secrets
On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (DTSA) amending the Economic Espionage Act, 18 U.S. Code Section 1836. The DTSA creates a new, federal, civil cause of action that may be used to sue former employees, independent contractors, consultants, or other businesses and individuals because they have misappropriated your company's trade secrets.
The DTSA mirrors the Uniform Trade Secrets Act, the Virginia Trade Secrets Act, and the North Carolina Uniform Trade Secrets Protection Act, in some respects. It provides an additional cause of action for businesses, along with other existing state and federal claims, because it allows additional procedures and remedies that go above and beyond existing laws.
The DTSA makes an ex parte (i.e. without the opposing party's knowledge or presence) injunction procedure available to businesses that are trying to protect their confidential information. In seeking the ex parte order, a company must first show that other equitable remedies such as a preliminary injunction, are ineffective or inadequate.
The DTSA also includes a "whistle blower" clause requiring companies that have confidentiality agreements with their employees, contractors, or consultants to add a whistle blower notice to those contracts, or risk the forfeiture of certain damages under the DTSA. This notice provision applies to confidentiality agreements entered into or updated after May 11, 2016, the date the DTSA was enacted.
Employers face a "penalty" if they do not include the new "whistle blower" notices in their confidentiality agreement and seeks damages for the misappropriation of trade secrets under the DTSA, it would not be able to collect "exemplary" damages (i.e., twice the actual damages) or collect attorney fees from the former employee or contractor being sued. However, the same employer would still be able to seek and get injunctive relief and collect actual damages under the DTSA. Businesses that sue individuals or companies for the misappropriation of their trade secrets also may collect damages available under any other applicable state or federal laws related to trade secrets or unlawful business practices. The DTSA does not preempt state law on this subject.
Companies are advised to take advantage of the new protections and damages provided in the DTSA. First, employers should identify company information that qualifies for trade secret protection under the DTSA. Second, companies should review their existing contracts with employees, contractors, and consultants that contain provisions governing the use of trade secrets. Businesses should then consider modifying their existing contracts to include language that complies with the DTSA in order to take advantage of the new remedies available. New confidentiality agreements also should contain the new whistle blower exemption clause. Finally, your attorney can assist you with this language and also with reviewing your termination procedures, return-of-property requirements, and security protocols for confidential information to ensure that your company is adequately protecting its trade secrets.
If you would like assistance in reviewing your options, please contact us to set up a meeting with our labor and employment law team.
Anne G. Bibeau
Dean T. Buckius
Arlene F. Klinedinst
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