HR’s Role In Protecting Company Trade Secrets

Jun 9, 2016

On May 11th, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law. It is an amendment to the Economic Espionage Act and provides a new, federal court civil claim for acts of trade secret misappropriation that occur on or after May 11, 2016.

Most states have statutes providing a state law claim for trade secret misappropriation. However, there are significant substantive and procedural variations in trade secret law from state to state. Now, with the passage of the DTSA, trade secret owners have a truly uniform federal law under which to pursue trade secret misappropriation claims. The DTSA has a number of key features of interest to employers:

  • It provides uniform definitions for “trade secrets” and “misappropriation.”
  • It allows for a civil action in federal courts which provides a uniform set of procedural and evidentiary rules.
  • It allows for the seizure of trade secrets from an alleged misappropriator without notice or an evidentiary hearing in extraordinary circumstances. However, a party that can prove it was damaged by a wrongful or excessive seizure order can potentially obtain lost profits, costs of materials, loss of goodwill, punitive/exemplary damages and attorneys’ fees.
  • It provides for a variety of different remedies including injunctive relief, damages, and exemplary (punitive) damages (up to two times the amount of damages).
  • It limits injunctive relief that can be awarded to avoid conflicts with state law limitations regarding non-compete contracts and other restraints of trade.
  • It allows a prevailing party to recover attorneys’ fees under certain conditions.
  • It provides protection from prosecution for whistleblowers and retaliation claimants.
  • It requires that employers provide employees notice of the whistleblower protection in order to preserve the ability to recover attorneys’ fees or exemplary damages.
  • It does not preempt or eliminate state law claims and remedies related to trade secrets, or modify other federal laws on intellectual property or unauthorized computer access.
  • It has an enhanced focus on, and features to address international trade secret theft and economic espionage.

Perhaps the most unique feature of the DTSA is its seizure of evidence provisions. The DTSA provides for the ability of a party, without notice to the opposing party), to apply for and secure an order from a court providing for seizure of the trade secret information from the alleged misappropriator’s possession without an evidentiary hearing. The seizure mechanism is designed to be an extraordinary remedy and has a number of safeguards. These include the requirement to show “extraordinary circumstances.” The applicant must also show it is likely to prevail on the merits. In addition, the applicant cannot have publicized the requested seizure.

trade secrets cartoonCompanies looking to take advantage of the new options provided under the DTSA should consider the following practical measures:

  1. Examine contracts and confidential information protection policies with employees and independent contractors to evaluate adding notice language regarding the DTSA whistleblower and retaliation claimant protections so that all remedies for misappropriation are preserved.
  1. Examine hiring and on-boarding procedures to make sure that reasonable steps are being taken to avoid newly hired employees bringing trade secrets of a prior employer with them.
  1. Examine employee termination and exit processing procedures to insure that appropriate protocol are in place to secure the return of confidential and trade secret information.
  1. Consider identifying in advance those items of trade secret information that are of the highest priority to protect, and that might require the pursuit of a seizure order if misappropriated.
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