On May 11, President Obama signed the Defend Trade Secrets Act (DTSA) into law. One of the most significant pieces of intellectual property legislation in recent years, the DTSA gives the same federal protection to trade secrets as patents, copyrights, and trademarks – which can subject employees who misappropriate those secrets to severe penalties.
What Does the DTSA Do?
A trade secret is any confidential information that provides a company with a competitive advantage. This can include business practices and methods, manufacturing processes, and product formulas. Famous trade secrets include how the “nooks and crannies” in Thomas’ English Muffins are made, the recipes for Coke and Pepsi, and Google’s search algorithms. Safeguarding its trade secrets is obviously very important for a company, which is why trade secret theft is so serious.
Trade secrets have always been statutorily protected, but only under state law, resulting in a lack of consistency across the country due to different and causing cases to be litigated and resolved with unpredictable outcomes. The DTSA now allows companies to file civil lawsuits for trade secret theft in federal court under the federal Economic Espionage Act, though the DTSA does not, however, pre-empt existing state trade secret laws.
One of the most controversial provisions of the DTSA is that it allows a company bringing a lawsuit to request law enforcement seize any property related to the trade secret in question without either notifying or getting a response from the accused employee or other party. The intention of the “ex parte seizure” provision is to prevent the transfer of the allegedly stolen information. It is a powerful new tool for companies, but certain conditions must be met before it can be used. The statute states that ex parte seizure is reserved for “extraordinary circumstances” and requires the company to indicate what specifically will be seized and proof that the target of the seizure actually has the property. The law also allows someone targeted by a seizure to seek damages if they feel the provision was abused or unfairly used.
Employees should take note that an employer can also seek the following remedies to protect company trade secrets:
- Injunctions against accused
- Monetary damages for losses as well as royalties. This amount can be doubled if the court finds the theft was willful and malicious
- Restrictions on a former employee’s present or future employment
- Criminal penalties for an organization involved in trade secret theft of $5 million or three times the value of the trade secret to the victim, whichever is greater.
It should be noted that the DTSA provides an exception in the case of a whistleblower who discloses a trade secret to law enforcement, government officials, a court, or attorney, provided the disclosure is confidential. Employers must inform employees of this exception in employment agreements and employee manuals.
Enactment of the DTSA will cause savvy companies to update employment policies and rules as well as employment contracts (including non-compete clauses) to ensure that they invoke DTSA protections against employees the violate the new law. As such, workers should review revised employment policies, manuals, and agreements to clearly understand their rights, and responsibilities, and the potentially serious ramifications for divulging trade secrets.