The Defend Trade Secrets Act of 2016:What You Need To KnowClaire Laporte

2016 Foley Hoag LLP. All Rights Reserved. *

AgendaBackground: trade secrets and the shift away from patentsThe DTSAs new private right of action

Basic provisions and the change in existing lawReverse preemptionNew seizure remedyWhistleblower protections and the need to update contractsOther best practices under the new structure

2016 Foley Hoag LLP. All Rights Reserved. *

Trade Secrets: the BasicsRestatement of Torts, 757 / Common LawRestatement of Unfair Competition, 3dUniform Trade Secrets Act (UTSA)Other state StatutesFederal: EEA, FOIA, ITCInternational treaties: TRIPS, TPP

No registration system

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Trade Secrets Find Their Way Into Court

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2016 Foley Hoag LLP. All Rights Reserved. *

The Shift from Patents to Trade Secrets Turmoil in the patent worldTroll litigation in Eastern District of TexasTotal cost of patent litigation leaps into the high 7 figures

2016 Foley Hoag LLP. All Rights Reserved. *

The Shift from Patents to Trade Secrets Difficulty of launching troll-type litigation about trade secrets New emphasis on trade secrets

But many technologies cant be protected using trade secrets And trade secrets are different!

2016 Foley Hoag LLP. All Rights Reserved. *

Patents or Trade Secrets?

PATENTSTRADE SECRETS Require public disclosureDestroyed by public disclosureTerm: 20 yearsTerm: as long as you keep the secretCan protect reverse-engineerable itemsNo protection against reverse engineeringObtained by prosecution; maintained by paymentsCan be labor-intensive to maintain; requires reasonable efforts to keep secretExclusive: no unlicensed use permittedNon-exclusive: use prohibited only if it results from misappropriationMust be non-obvious, adequately described, and usefulMust acquire value from not being generally known

2016 Foley Hoag LLP. All Rights Reserved. *

AgendaBackground: trade secrets and the shift away from patentsThe DTSAs new private right of action

Basic provisions and the change in existing lawReverse preemptionNew seizure remedyWhistleblower protections and the need to update contractsOther best practices under the new structure

2016 Foley Hoag LLP. All Rights Reserved. *

New Private Right of ActionLegislation flew through otherwise gridlocked CongressCommerce Clause-based: applies only to trade secrets related to a product or service used in, or intended for use in, in interstate or foreign commerceJurisdiction in either federal or state court

Diversity no longer needed to bring a trade secret action in federal courtBut seizure provisions are effectively federal onlyNo preemption of state law

Potential impact on inevitable disclosure doctrine

2016 Foley Hoag LLP. All Rights Reserved. *

Employee Mobility and Reverse PreemptionInjunctions under the new law do not restrict employee mobility

An injunction may not prevent a person from entering into an employment relationshipConditions placed on employment shall be based on evidence of threatened misappropriation and not merely on the information the person knowsInjunctions may not otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business

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Ex Parte Seizure ProcessAvailable only in extraordinary circumstances Purpose: to prevent the propagation or dissemination of the trade secret

But apparently not to prevent the misappropriation itselfRequirements include typical elements for injunctive relief, plus:

Injunctive relief otherwise available must be insufficientApplication must show that if notice were provided, the evidence would be destroyed, moved, hidden, or otherwise made inaccessible to the courtRelief only available if applicant has not publicized the requested seizure

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Seizure: the MechanicsSeizure to be made by Federal law enforcement officerOrder must provide for the narrowest seizure of property necessary to achieve the purpose of this paragraphOrder must minimize interruption of:

Business operations of 3d partiesLegitimate business operations of targetCourt must protect the target from publicity, by or at the behest of the person obtaining the order, about such order and any seizure under such order.Seized materials to be in court custodySpecial master may be appointed to sift through the materialDamages for wrongful seizure available

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Giving Notice to WhistleblowersIMMUNITY.An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made in confidence to a government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law; trade secrets may also be used in anti-retaliation proceedings relating to a suspected violation of law .NOTICE. An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.

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Whistleblower ProvisionsFailure to provide notice of whistleblower immunity results in loss of exemplary damages and attorney fees.

Likely result: continuing reliance on state law causes of actionNote optional notice theory Broad definition of employee: For purposes of this subsection, the term employee includes any individual performing work as a contractor or consultant for an employer.

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Contractors and ConsultantsStatute confers immunity on an individual who blows the whistle.Mohamad v. Palestinian Authority, 132 S.Ct. 1702, 1707 (2012) (the term individual in the U.S. Code must be construed to mean natural persons alone, and not organizational entities, absent evidence of contrary Congressional intent)Thus, probably no requirement to provide notice in contracts with entities (firms, companies, professional associations, partnerships)

2016 Foley Hoag LLP. All Rights Reserved. *

AgendaBackground: trade secrets and the shift away from patentsThe DTSAs new private right of action

Basic provisions and the change in existing lawReverse preemptionNew seizure remedyWhistleblower protections and the need to update contractsOther best practices under the new structure

2016 Foley Hoag LLP. All Rights Reserved. *

Action Plan: Contract Review (1)Update employee/consultant manuals/agreements:

Provide notice of whistleblower immunityCheck confidentiality provisions: they matterCheck invention assignment provisions to be sure they cover: Know-how Financial, business, scientific, technical, economic, or engineering information Patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codesAny other items likely to be protectable as trade secrets Consider jurisdiction and forum provisions with foreign contractors and consultants

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2016 Foley Hoag LLP. All Rights Reserved. *

Action Plan: Contract Review (2)Review and plan for licenses, collaborations, and JVs:

Provide for reasonable measures to safeguard trade secretsRequire counterparties to provide notice of whistleblower immunity to their own employees/consultants/contractorsBe clear who owns trade secrets developed in JVs, collaborations, and other agreements involving information flowsNote that a rogue co-owner can destroy the entire value of the trade secret trade secrets are more vulnerable than patentsConsider drafting provisions to determine how information will be protected: patent or trade secret?Be sure nobody files for a patent on something that is better protected as a trade secret!

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Action Plan: Contract Review (3)Be careful during financing and M&A discussions and other non-collaborative information exchange situations:

Be sure that there are adequate NDAs in place Consider jurisdiction and forum provisions with foreign counterparties

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Proving Need for SeizureProving need for seizure will involve precautionary steps that should be taken anyway:

Employee/consultant/contractor NDA and information assignment agreementsNeed-to-know access for sensitive informationRoutine monitoring of computer account access anomaliesAnalytics for computer use by departing or recently departed employeesSafeguard physical facility spacesLabel physical items when possible

The Defend Trade Secrets Act of 2016:What You Need To KnowClaire Laporte

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