Businesses and the DTSA: What Companies Need to Know about the 2016 Law
The Defend Trade Secrets Act (“DTSA”) became the effective law on May 11, 2016. While trade secrets are often the less talked aspect of a company’s intellectual property portfolio, they still have tremendous value. Thus, they are often a company’s most important intellectual property asset. The DTSA introduces new ways of protecting trade secrets from global and domestic theft. Consequently, companies ought to have a fundamental understanding of the Act’s key provisions and how those provisions affect them.
First, companies should update their non-disclosure agreements, licensing agreements, and other contracts in order to reflect the DTSA’s definitions for trade secrets and trade secret misappropriation. Paraphrasing the DTSA, a trade secret is any information that the owner attempts to keep a secret and that information derives its economic value from not being generally known. Common sense examples of trade secrets include secret sauces and formulas. However, what constitutes a trade secret is broad. It can also include customer lists and employee manuals. Moreover, under the DTSA, trade secret misappropriation occurs when (1) the secret is acquired through improper means, such as theft, or (2) disclosed without the owner’s consent. Therefore, companies should make sure to define trade secrets in its contracts consistent with the DTSA. Furthermore, companies should audit their asset portfolios to make sure they are taking reasonable efforts to protect their trade secrets.
Second, companies must notify their employees of certain new immunities under the DTSA. Pursuant to 18 U.S.C. § 1833(b), employees who disclose illegal trade secrets to the government are immune from liability. Employers are required to notify employees of this whistleblower protection. Furthermore, if an employer fails to provide notice to an employee, the employer forfeits the ability to recover exemplary damages or attorney fees against that employee. Employers can notify employees through something as simple as an employer-employee contract or through a written notice to the employee.
Third, companies need to weigh the advantages and disadvantages of bringing a trade secret claim in federal court. Up until 2016, all misappropriation claims had to be brought under state law. The DTSA created a federal claim that would allow parties to sue for trade secret misappropriation under federal law. Pursuing a claim in federal court comes with advantages such as thorough pre-trial discovery procedures and access to judges with better resources. However, businesses should understand that litigating in federal court is often more expensive. Furthermore, litigating under the DTSA carries with it uncertainties because the statute is still relatively new.
Fourth, businesses should be aware of how the ex parte seizures operate under the DTSA. This provision allows a party to petition the court to order law enforcement to seize the property of a person or business that could be used to misappropriate a trade secret. Fortunately, the DTSA requires extreme circumstances in order to grant an ex parte seizure. This requirement helps safeguard against abuses and judicial errors. Regardless, the target of a seizure could face significant setbacks and costs when its assets are seized without notice.
The DTSA introduces new ways to protect trade secrets in a global trade era. Because the law is still relatively new, its nuances have not been entirely worked out by courts. However, businesses should be aware of the changes it creates and not hesitate to reach out to legal practitioners to ensure that they are complying with the law.