by David Adler

New federal Defend Trade Secrets Act expands protection, adds safe harbor

May 27, 2016
LegalTechnology Industry

The continuous press for innovation in technology and media will challenge intellectual property laws to evolve. The new Defend Trade Secrets Act provides a powerful new tool to protect a business's intangible assets and a major change in how Intellectual Property rights are recognized and enforced at the federal level.

handsome male executive holding finger up to be quiet keep a secret
Credit: Thinkstock

We know that Intellectual Property rights (copyright, patent, trademark, trade secrets)  play a crucial role in America’s global competitiveness. Effective May 11, 2016, President Obama signed into law a major change in how Intellectual Property rights are recognized and enforced at the federal level. This new law requires notice in any agreement that the individual is aware of new whistleblower immunity provisions. In order for businesses to take advantage of the protections afforded by the Act, it is important to understand some of the new requirements.

The Defend Trade Secrets Act (“DTSA” or the “Act”) creates a new federal cause of action for trade secret misappropriation. Controversial yet effective, the DTSA addresses “ex parte” property seizure, jurisdiction, whistleblower and retaliation claim immunity, but adds a new “notice” requirement affecting employees and outside contractors. Interestingly, the new law may help address a perceived gap in coverage offered by the Computer Fraud and Abuse Act (“CFAA”) which has had mixed success protecting against theft/misappropriation of digital information by employees and service providers.

These are important rights to address because they can be difficult to enforce and, once misappropriated, the secret has potentially lost all value and ceases to confer a competitive advantage. The law helps trade secret owners prevent further release or dissemination. Through “ex parte” seizure of property, a court can order the seizure of property where its shown that it is necessary (“extraordinary circumstances”) to prevent the dissemination of the trade secret. This provision also allows recovery of damages for abusive or wrongfully-acquired seizure orders.

U.S. district courts have original, non-exclusive, jurisdiction over civil actions brought under the law, when a plaintiff can show that the trade secret is “related to a product or service used in, or intended for use in, interstate or foreign commerce.”

To prevent abuse, the DTSA contains a “whistleblower” provision immunizing an individual against criminal or civil liability under any federal or state trade secret law for the disclosure of a trade secret that is made (a) “in confidence” to a federal, state or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law, or (b) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.”

It is important to note the new “notice” requirement. This provision must be in all contracts and communications that may create, disclose or disseminate information protectable as a trade secret. Employers must provide notice of the immunity provision in “any contract or agreement with an employee that contains provisions governing the use of a trade secret or other confidential information.” This notice provision applies to all contracts entered into or amended after May 11, 2016.

As a result of these changes, companies should consider the following tasks. First, identify the confidential information of the company that qualifies for trade secret protection under the DTSA or other applicable state law. Second, review existing contracts, renewal/expiration dates, and consider amending these agreements. Lastly, consider how the new law may affect employee off-boarding procedures.

When reviewing contracts ask whether the company needs “notice” language regarding the DTSA whistleblower and retaliation protections. You may want to modify existing contracts to include the language, failure to provide the notice has consequences. If appropriate, cross-reference Company’s policies in employee literature that sets forth the employer’s compliance requirement that it cross reference its reporting policy for a suspected violation of law.

For terminated and exiting employees, take inventory of physical and digital media and equipment issued to employee, access/authentication/authority permissions to digital information, interview regarding use of third-party distributed network data storage, removable external media such as “thumb” drives, cloud storage services like Dropbox, BOX and Google docs.

The continuous press for innovation in technology and media will challenge intellectual property laws to evolve. This may also create a compliance headache, but it is important to understand how these changes can be seen as new opportunities to protect business assets.