Don’t Think Economic Espionage Impacts Your Business? Now It Does.
On May 11, 2016, the Economic Espionage Act of 1996 was amended by the Defend Trade Secrets Act of 2016 (DTSA). The DTSA represents the most significant trade-secret reform legislation in several decades.
For the first time, the DTSA has created a federal private cause of action for misappropriation of trade secrets. The federal remedies may include injunctive relief, damages, and the possibility of double damages and attorney’s fees for willful and malicious misappropriation.
The primary provisions of the DTSA that business managers should be aware of are:
Under the DTSA, in general, a court may grant an injunction “to prevent any actual or threatened misappropriation.” In addition, the DTSA includes an ex parte seizure provision that allows courts, per a plaintiff’s expedited, unilateral request, to order law enforcement to seize property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”
The DTSA limits injunctive relief that would affect employees or conflict with applicable state laws regarding restraint of trade. The DTSA restricts injunctive relief that would prevent anyone from entering into an employment relationship by requiring that such relief must be “based on evidence of threatened misappropriation and not merely on the information the person knows.”
Whistleblower protections of the DTSA provide for protections and immunity to employees who disclose trade secrets when reporting unlawful activities to government officials or as part of an anti-retaliation lawsuit. In this context, “employee” also includes both contractors and consultants doing work for an employer, in addition to regular employees.
The DTSA requires an employer to “provide notice of the immunity . . . in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” This notification requirement applies to all such contracts entered into or updated after the date of the enactment of the DTSA (May 11, 2016). The notice requirement can be satisfied “if the employer provides a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.” If an employer fails to comply with this notice requirement and subsequently brings an action under the DTSA against an employee who did not receive proper notice, the employer “may not be awarded exemplary damages or attorney fees.”
To comply with the provisions of the DTSA and ensure the maximum protection offered by its provisions, all newly drafted or updated employment agreements or nondisclosure agreements should include a standard notification clause regarding whistleblower protections. Companies might also consider creating and issuing a trade-secret policy with the notification clause and then cross-referencing that policy in the employment agreements.
MendenFreiman has already begun working with our clients on amending such agreements, and we stand ready to help you as well. Contact us today.