The Defense Trade Secrets Act
What is the Defense Trade Secrets Act (DTSA)?
What do employers need to do to take advantage of this new federal statute?
Defense Trade Secrets Act (DTSA)
The DTSA authorizes a civil action in federal court for the misappropriation of trade secrets that is related to a product or service used in, or intended for use in, interstate or foreign commerce. Previously, Trade secret claims were under state law, and 48 states adopted some version of the Uniform Trade Secrets Act (UTSA). New York and Massachusetts, the only two states that have yet to adopt a version of the UTSA, provide civil remedies under the common law for trade secret misappropriation.
The DTSA provides the following:
1) creates a uniform standard for trade secret misappropriation by expanding the Economic Espionage Act of 1996 (“EEA”) to provide a federal civil remedy for trade secret misappropriation;
2) provides parties pathways to injunctive relief and monetary damages in federal court to prevent disclosure of trade secrets and account for economic harm to companies whose trade secrets are misappropriated, including via ex parte property seizures (subject to various limitations), which means that a plaintiff can seek to have the government seize misappropriated trade secrets without providing notice to the alleged wrongdoer; and
3) harmonize the differences in trade secret law under the UTSA and provide uniform discovery.
The significant aspects of the DTSA are summarized below:
- The DTSA provides for actual damages, restitution, injunctive relief, significant exemplary relief (up to two times the award of actual damages), and attorney’s fees.
- Ex parte property seizures are available to plaintiffs, but subject to limitations. As noted above, an ex parte seizure means that an aggrieved party can seek relief from the court against a party to seize misappropriated trade secrets without providing notice to the alleged wrongdoer beforehand. As a measure to curtail the potential abuse of such seizures, the DTSA prohibits copies to be made of seized property, and requires that ex parte orders provide specific instructions for law enforcement officers performing the seizure, such as when the seizure can take place and whether force may be used to access locked areas. Moreover, a party seeking an ex parte order must be able to establish that other equitable remedies, like a preliminary injunction, are inadequate.
- Injunctive relief for actual or threatened misappropriation of trade secrets is limited in that a court will NOT grant injunctive relief if it would prevent a person from entering into an employment relationship. A court could further place conditions on that employment relationship only upon a showing through evidence of “threatened misappropriation and not merely on the information the person knows.” This language was added to guard against plaintiffs pursuing “inevitable disclosure” claims.
- The statute of limitations is three years. A civil action may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered.
- An immunity provision exists to protect individuals from criminal or civil liability for disclosing a trade secret if it is made in confidence to a government official, directly or indirectly, or to an attorney, and it is made for the purpose of reporting a violation of law. This provision places an affirmative duty on employers to provide employees notice of the new immunity provision in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” An employer will be in compliance with the notice requirement if the employer provides a “cross-reference” to a policy given to the relevant employees that lays out the reporting policy for suspected violations of law. Should an employer not comply with the above, the employer may not recover exemplary damages or attorney fees in an action brought under the DTSA against an employee to whom no notice was ever provided. Curiously, the definition of “employee” is drafted broadly to include contractor and consultant work done by an individual for an employer.[1]
- The “Trade Secret Theft Enforcement” provision increases the penalties for a criminal violation of 18 U.S.C. § 1832 from $5,000,000 to the greater of $5,000,000 or three times the value of the stolen trade secrets to the organization, including the costs of reproducing the trade secrets.
- The DTSA also contains a provision that allows trade secret owners to be heard in criminal court concerning the need to protect their trade secrets.
- The DTSA further amends the RICO statute to add a violation of the Economic Espionage Act as a predicate act.
[1] This is an affirmative duty that is placed on employers if they want to take advantage of the DTSA provisions.
In sum, the DTSA provides aggrieved parties with legal recourse in federal court via a federal trade secret cause of action (whereas previously, relief was only available under the state law UTSA or common law claims), as well as new remedies, including a seizure order. A party can now sue in federal court for trade secret misappropriation and seek actual damages, restitution, injunctive relief, ex parte seizure, exemplary damages, and attorney’s fees under the DTSA.
The following strategies could assist employers in complying with and taking full advantage of the relief available under the DTSA:
- Employers should have qualified counsel or other qualified individuals review policies and relevant agreements to ensure that they contain language required under the DTSA, such as proper notice of the immunity provision referenced above.
- Employers need to ensure that if they are using non-disclosure agreements with employees, that such agreements have clear definitions of trade secrets and confidential information and are not overly broad.
Please contact Scott Kaliko at SRFK at (212) 930-9700, skaliko@srf.law, or visit our website at www.srf.law if you wish to learn more or discuss how our firm can assist you in taking advantage of Defense Trade Secrets Act.
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