Tag Archives: DTSA

Use This Language to Comply with the Notice Requirements in the New Federal “Defend Trade Secrets Act”

Contributed by Jeff Glass, May 17, 2016

As we reported on May 13, 2016, there is now a federal statute, called the Defend Trade Secrets Act (DTSA) that provides a federal cause of action for trade secret misappropriation. The full DTSA is found here.

One important feature of the DTSA is that it, like most state trade secret statutes, allows employers to recover punitive damages and attorney’s fees for the unauthorized use or disclosure of trade secrets. However, unlike the state statutes, the DTSA conditions the availability of these remedies on compliance with certain notice requirements contained in Section 7 of the Act.

The notice must be provided “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The DTSA also allows notice to be provided by cross referencing a policy document that is provided to the employee.  Although the Act specifically mentions contracts with “an employee,” elsewhere it defines “employee” to include “any individual performing work as a contractor or consultant for an employer.”

The scope of contracts covered by the Act is wide. It would appear to include not only confidentiality agreements entered into at the time of hire, or during employment, but also severance and separation agreements that contain confidentiality provisions.

We strongly suggest that employers add the following language to any contracts that relate to the protection of trade secret information:

Notice of Rights Pursuant to Section 7 of the Defend Trade Secrets Act (DTSA)

Notwithstanding any provisions in this agreement or company policy applicable to the unauthorized use or disclosure of trade secrets, you are hereby notified that, pursuant to Section 7of the DTSA, you cannot be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law.  You also may not be held so liable for such disclosures made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.  In addition, individuals who file a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order.

We will keep you updated on further developments under the DTSA.

New Statute Creates Federal Trade Secret Claim

Contributed by Jeff Glass, May 13, 2016

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (DTSA).  DTSA provides a new federal cause of action for misappropriation of trade secrets. A “trade secret” is a broad category of intellectual property. Essentially, it includes any business information that is confidential and derives value from not being known to competitors. It can include everything from technology, to business strategies, to proprietary information about customers and prospects. Unlike patents, copyrights or trademarks, there is no registration system for trade secrets nor is there any set expiration date.

Frequently, trade secret claims are asserted where parties accuse competitors of stealing proprietary information. Trade secret claims can also be used where an employee uses his or her access to company information to compete unfairly, but never signed a restrictive covenant.

Legal protection of trade secrets has been available for many years under the Uniform Trade Secrets Act (UTSA), which has been enacted in some form by 47 states. Now, under DTSA, so long as the trade secret dispute meets threshold Commerce Clause requirements – basically, a nexus with interstate commerce – litigants can access the federal courts. DTSA does not pre-empt state statutes or common law doctrines that govern trade secret misappropriation.

The DTSA adopts the framework of the UTSA with some subtle definitional changes which may or may not be significant depending on how courts interpret the Act. This blog will provide updates as the statute is interpreted. Like the UTSA, it provides for recovery of legal fees for willful violations, allows for punitive damages, and provides for sanctions for bad faith lawsuits. DTSA is not retroactive. It applies to violations that occur on or after May 11, 2016.

Although DTSA is similar to UTSA in most respects, there are some noteworthy differences:

  • The Act has a “whistleblower” notice provision that requires employee confidentiality agreements to include language putting employees on notice that they are immune from DTSA liability if they disclose trade secrets in confidence to the government with suspected violations of law or in compliance with subpoenas. If this notice is not provided, an employer cannot avail itself of exemplary damages or attorneys’ fees in DTSA litigation against such persons. Accordingly, employers should update their agreements to provide this notice.
  • The Act provides for ex parte seizures of property in “extraordinary circumstances.”
  • The Act has heightened criminal penalties for trade secret misappropriation.

Notwithstanding these provisions, for most employers, the main impact is the option to file in federal court. This enhances lawyers’ ability to choose the best forum for their clients’ claim. In addition, as the DTSA is interpreted by federal courts, substantive differences in the law applicable to trade secret misappropriation may develop between the state and federal statutes, such that employers would be better served by filing in federal court as opposed to state court.

We will keep you updated in this blog as to the development of the DTSA. Click here to read a follow up on how to comply with notice requirements regarding DTSA.