Defend Trade Secrets Act Signed Into Law

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (DTSA). The DTSA, which passed both the House and the Senate with wide bipartisan support, is effective immediately and has significant implications for U.S. businesses. The DTSA is actually a series of amendments to the Economic Espionage Act of 1996, which established criminal penalties for certain types of trade secret theft. Among other significant changes, the act broadens both the definitions of "trade secret" and "misappropriation," thereby expanding the rights of trade secret owners.

The most significant impact of the DTSA is that it creates, for the first time, a federal civil cause of action for misappropriation of trade secrets related to a product or service used in, or intended for use in interstate or foreign commerce. This new cause of action gives trade secret owners in most cases the option to file civil lawsuits for trade secret misappropriation in U.S. federal courts. Until now, trade secret law has consisted of a patchwork of state common and statutory law that, while similar, is not entirely consistent. With the addition of a federal civil cause of action, the DTSA is expected to result in the development of more uniform national case law for trade secret protection and to enhance the enforcement of trade secret rights in multistate and international cases, which are becoming increasingly common. It is significant to note, however, that the DTSA does not preempt state laws. Accordingly, trade secret owners still have the option to file claims of trade secret theft in state courts, but they could find their cases removed to federal court.

Employers will be directly impacted by the DTSA. The DTSA requires that employers provide notice in any contract or agreement with an employee that governs the use of a trade secret or other confidential information that the employee will be immune from claims under the Act when they disclose trade secrets to government officials or an attorney for purposes of reporting or investigating a suspected violation of law. Failure to include this notice provision will limit the employer's remedies in trade secret litigation by prohibiting the recovery of exemplary damages and attorney fees from any employee to whom the notice is not provided. Because the Act defines "employee" broadly to include "any individual performing work as a contractor or consultant for an employer," employers will be well-advised to revisit their employment contracts, contracts with contractors or consultants, NDAs, and employee policy manuals to ensure that they comply with this new provision.

The DTSA will significantly impact the way businesses protect and enforce their trade secrets. The law presents trade secret owners with an opportunity to review their trade secret protection and employment policies, as well as contracts that govern the use of trade secret or confidential information, to ensure compliance with the DTSA and maximize their legal protections.

If you have any questions about how the DTSA impacts your business, please contact us.