New Federal Trade Secrets Law Impacts Employers

May 17, 2016

Publication| Labor & Employment

The Defend Trade Secrets Act of 2016 (the Act), signed into law by President Obama on Wednesday, May 11, 2016, allows companies for the first time to directly file a civil lawsuit in federal court for the theft of trade secrets. Co-existing with state-level trade secrets law, this Act was designed to give litigants easier access to federal courts to file trade secret actions and seeks to provide businesses with a more reliable way to protect their trade secrets.

Under the Act, the owner of a trade secret can:

  • Obtain both an injunction and damages, including actual loss, unjust enrichment and a reasonable royalty for misappropriation, as remedies;
  • Recover double damages and reasonable attorneys’ fees for willful and malicious misappropriation;
  • Apply for a seizure order, which requires a court to take custody of materials such as laptops, servers, storage devices, papers or other property, to prevent dissemination of the trade secret; and
  • Ask a federal court to permit a seizure without the other party knowing about the request, provided he can show, among other things, that the accused person would evade an ordinary injunction and destroy or hide the property if given advance notice.

The Act also contains limiting provisions to protect employees from unfair injunctions that may limit their ability to work for a new employer. Specifically, an injunction to prevent a person’s employment may not be based “merely on information the person knows.” Instead, there must be evidence that the trade secret information at issue will actually be misappropriated. In other words, a trade secret owner seeking an injunction to bar a former employee from working for a new employer may not rely on the principle that an employee with knowledge of a former employer’s trade secret would “inevitably” disclose the same to the new employer.

The Act also contains strong protections for corporate whistleblowers by establishing immunity under two scenarios. First, immunity is established for employees who disclose trade secrets to the government as part of a whistleblower case. Second, immunity has been established for alleging retaliation for reporting a suspected violation of the law, so long as the lawsuit is filed under seal. The Act designates certain procedures employees can follow to obtain this immunity, and requires all employers to notify employees of these immunity rights in any contract or agreement that governs trade secrets or other confidential information. Notably, “employee” under the Act also includes contractors and consultants.

In order to take full advantage of this new federal law, employers should consider whether to revise their agreements concerning trade secrets and nondisclosure of confidential information.

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