Congress Passes the Defend Trade Secrets Act of 2016

Legal Alert

May 9, 2016

On April 4, 2016, the United States Senate passed the Defend Trade Secrets Act of 2016 (“DTSA”), with the House following suit on April 27, 2016. The DTSA now awaits President Obama’s approval. Because the President previously indicated support for the Act, legislators expect the Act will be promptly signed into law. The DTSA goes into effect on the date of its enactment.

The DTSA amends the Economic Espionage Act, 18 U.S.C. § 1831, et seq., to provide a federal civil cause of action for misappropriation and theft of trade secrets. Currently, companies and individuals are limited to relief under state misappropriation law. Notably, the DTSA does not preempt state law. Therefore, plaintiffs will have the option of two different laws, one state and one federal, under which to proceed when faced with a threat to trade secrets.

In many ways, the DTSA is distinct from the Uniform Trade Secrets Act and offers several additional benefits. Most profound, the DTSA includes the right to seek civil seizure of misappropriated trade secrets “to prevent the propagation or dissemination of the trade secret that is the subject of the action.” That is, federal district courts will have authority to order law enforcement officials, who may be assisted by independent experts or special masters, to locate, isolate, and seize property containing trade secrets. Remedies available beyond seizure are fairly standard, and include injunction, damages, exemplary damages, and attorneys’ fees. Exemplary damages may equal two times the amount of actual damages, plus attorneys’ fees where misappropriation is “willful and malicious.”

Additionally, the Act provides uniformity. Companies and individuals may seek relief nationwide in order to avoid nuances between/among state laws, and better predict the outcome of their cases. Finally, the DTSA provides whistleblower protection. An individual cannot be held criminally or civilly liable for disclosing trade secrets to a government official or to an attorney for the purpose of reporting or investigating a suspected legal violation. In order to solidify this protection, the DTSA requires employers to “provide notice of the immunity” “in any contract or agreement with an employee that govern the use of trade secret or other confidential information.” Accordingly, once the DTSA is enacted, employers will need to revise employment agreements and/or policy documents to reflect the notice requirement because the ability to collect exemplary damages will be tied to providing such notice of immunity.

If you have any questions regarding these issues raised in this client alert, please contact your labor and employment counsel at Smith, Gambrell & Russell, LLP.

This client alert is intended to inform clients and other interested parties about legal matters of current interest and is not intended as legal advice.