May 13, 2016
Defend Trade Secret Act of 2016
By Thomas P. McNulty
On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”). In what is likely to have the most impact, the DTSA provides for a federal, private, civil cause of action for trade secret misappropriation. Previously, civil actions for trade secret misappropriation could only be instituted by federal prosecutors, and were rare. Under the DTSA, an owner of a trade secret can now bring suit in federal court alleging misappropriation. Injunctive and monetary relief can be obtained, and if willful or reckless misappropriation is proven, exemplary damages of up to two times actual damages can be awarded.
The DTSA provides additional protections to a trade secret holder that are not generally available in state court. Federal Courts may order seizure of property of the defendant where deemed necessary to prevent the propagation or dissemination of the trade secret. A seizure order can be sought at the onset of the litigation, analogous to a preliminary injunction. The DTSA allows for extraterritorial application, which means that secret-holders can sue American people or companies for acts that take place outside of the United States. The DTSA requires district courts to treat trade secret information in confidence by prohibiting courts from directing disclosure of any purported trade secret until such time as the secret-holder has had the opportunity to identify, under seal, the interest in keeping the information secret, and by determining that disclosure of trade secret information to a court under the Act shall not constitute a waiver of trade secret protections.
An important element of the DTSA is the employee immunity notice provision. The Act provides for immunity for employees who disclose trade secret information of their employers to government officials, in confidence, in connection with whistle-blowing activities, or in response to a court order, provided the information is disclosed under seal. The Act requires employers to affirmatively provide notice of these immunities into any contract or agreement with employees that governs the use of trade secret or confidential information. In the absence of such notice, employers are prohibited from seeking exemplary damages or attorneys’ fees in a suit against the employee. Businesses should work with counsel to ensure that this requirement is met in all future employment contracts.
The DTSA is intended to coexist with, rather than preempt, state trade secret law. The Act took effect upon its being signed, and applies to all acts of alleged misappropriation occurring on or after May 11, 2016. The statute of limitations for bringing a trade secret misappropriation claim is three years from the time the misappropriation is discovered or reasonably should have been discovered. Unlike patent or copyright infringement, however, continuing misappropriation will constitute a single claim, meaning that once three years has passed without filing suit, a trade secret holder will not be able to prevent continuing use of a trade secret by the misappropriator.
Our team is well versed in advising clients on trade secret strategies and enforcement. Should this advisory spark additional questions, feel free to contact Tom McNulty at 617-395-7040 or a member of our Trade Secrets team.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. This material may be considered advertising under certain rules of professional conduct.