NEW FEDERAL TRADE SECRETS ACT TAKES EFFECT

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By: Carol G. Schley, Clark Hill PLC

 

On May 11, 2016, the Defend Trade Secrets Act (“DTSA” or the “Act”) was signed into law by President Obama.  DTSA does not preempt or otherwise affect existing state laws concerning trade secrets, including Michigan’s Uniform Trade Secrets Act but, instead, provides new federal remedies and a new civil federal cause of action for trade secret misappropriation. For employers, there are a few key features of DTSA which are important to note.

First, DTSA contains a “whistleblower” provision, which provides that an individual cannot be held criminally or civilly liable under any state or federal trade secret law if that individual discloses trade secrets: (i) in confidence to a federal, state or local government official, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of the law; or (ii) in a complaint or other document filed in a lawsuit or similar proceeding, if the filing is made under seal (i.e., filed in a manner that prevents it from being publicly disclosed).

Second, and of most immediate importance to employers, DTSA contains a provision that requires an employer to provide notice of the above-referenced immunity provided by the Act in any agreement with an employee, contractor or consultant that concerns the use of trade secrets or other confidential information (e.g., an employment agreement in which an employee agrees not to disclose employer trade secrets).  This requirement only applies to agreements entered into or amended on or after May 12, 2016 (i.e., currently-existing agreements are not affected until and unless they are amended).  This notice required by DTSA can be included in the agreement itself or by reference in the agreement to a separate written policy maintained by the employer that sets forth the employer’s reporting policy for suspected violations of the law.  If an employer fails to include such provisions in an agreement, the employer will be prohibited from recovering attorney’s fees and exemplary damages which otherwise may be awarded to it for a claim of misappropriation under the Act.

Finally, DTSA provides under limited circumstances that a party seeking to protect its trade secrets may obtain an ex parte order from a court seizing the alleged trade secrets from the party alleged to have misappropriated them.  An ex parte order is an order that is entered in favor of one party without prior notice to the other party.  However, to obtain such an order, “extraordinary circumstances” must be established.  Further, the party from whom property is seized by ex parte order may obtain relief if the seizure is proven to be “wrongful or excessive.”  As there is no body of case law yet regarding DTSA, it remains to be seen under what circumstances ex parte relief will be granted by courts and, correspondingly, under what circumstances defendants will be able to obtain relief for “wrongful or excessive” seizures.

The statute of limitations for bringing a claim under DTSA is three years.  Remedies for misappropriation under the Act, in addition to the ex parte relief discussed above, include injunctive relief, actual damages, damages for unjust enrichment, a reasonable royalty (in lieu of other damages), multiple damages where a trade secret has been “willfully and maliciously misappropriated” and attorney’s fees under certain circumstances.

In light of DTSA, employers should ensure any agreements concerning trade secrets or other confidential information which are entered into going forward (or any currently-existing agreements that are amended in the future) include the language required by DTSA with respect to immunity for whistleblowing activities.  Employers should also consider whether they should adopt a stand-alone policy on this issue as provided by the Act.  In light of these new requirements, it is recommended that employers obtain the assistance of counsel to ensure their compliance with the Act.

Carol G. Schley is a member of the Detroit SHRM Legal Affairs Committee and an attorney at the law firm Clark Hill PLC.  She can be reached at cschley@clarkhill.com or (248)530-6338.

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