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Defend Trade Secrets Act: What You Need to Know May 31, 2016

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  • Defend Trade Secrets Act: What You Need to Know

    May 31, 2016

  • Todays eLunch Presenters

    Cardelle B. Spangler Partner, Labor & Employment


    [email protected]

    Daniel J. Fazio Partner, Labor & Employment


    [email protected]

  • Agenda for Todays Presentation

    Overview Key Provisions Comparison to Uniform Trade Secrets Act Important Takeaways Tips and Best Practices for Employers


  • DTSA Overview

  • History of DTSA

    In the past 3 years, Congress attempted on 4 occasions to pass legislation protecting trade secrets

    Congressional support for DTSA was nearly universal President Obama signed bill into law on May 11, 2016

    Amends Economic Espionage Act of 1996


  • Purpose of DTSA

    Help combat the continued and growing threat of trade secret misappropriation

    Help businesses safeguard their trade secrets in federal


    Address perceived shortfalls in protections offered by the States under the Uniform Trade Secrets Act


  • DTSA Key Provisions

  • Key Provisions of DTSA

    Creates Federal civil remedy for trade secret theft Purports to enhance uniformity and predictability

    Creates civil seizure procedure Provides injunctive and monetary remedies Provides whistleblower protections Provides incentive to notify employees of certain

    whistleblower rights Does not preempt state laws Provisions are effective immediately


  • Federal Civil Remedy

    DTSA provides: An owner of a trade secret that is misappropriated may bring a civil action

    if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

    Trade Secret includes: All forms and types of financial, business, scientific, technical, economic, or

    engineering informationwhether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:

    a) The owner thereof has taken reasonable steps to keep such information secret; and

    b) The information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.


  • Federal Civil Remedy cont.

    Misappropriation includes: Acquisition of a trade secret of another by a person who knows, or has reason

    to know, that the trade secret was acquired by improper means; or

    Disclosure or use of a trade secret of another, without consent, by a person who: (1) used improper means to acquire knowledge of the trade secret; (2) had reason to know that the knowledge of the trade secret was acquired by improper means, or under circumstances giving rise to a duty of secrecy; or (3) before a material change in position, had reason to know that the trade secret was disclosed by accident or mistake.

    Improper Means include: Theft, bribery, misrepresentation, breach or inducement of breach of a duty of

    secrecy, or espionage through electronic or other means. Improper means do not include reverse engineering, independent derivation, or any lawful means of acquiring a trade secret.


  • Civil Seizure Procedure

    Civil seizure available in extraordinary circumstances Requirements for ordering a civil seizure:

    Preliminary injunction or temporary restraining order not adequate Immediate and irreparable injury will occur if seizure not granted Harm to applicant outweighs harm to person against whom seizure would be

    ordered and substantially outweighs harm to third parties

    Applicant likely to show the existence of trade secret and its misappropriation or a conspiracy to misappropriate it

    Person against whom seizure would be ordered has actual possession Application describes matter to be seized and, to a reasonable extent, its location

    with particularity

    Person against whom seizure would be ordered, or persons acting in concert with them, would destroy, move, hide, or make unavailable the matter if on notice

    Applicant has not publicized requested seizure


  • Civil Seizure Procedure cont.

    Elements of a civil seizure order Provide for the narrowest seizure of property necessary to achieve

    purpose Be accompanied by an order protecting the seized property from

    disclosure Delineate for law enforcement officials executing the seizure the scope

    of their authority Set a hearing date within seven days Require security

    Party against whom an order has issued may move at any time for dissolution or modification of the order


  • Civil Seizure Procedure cont.

    Protection from publicity Secure storage of seized material Service of order Seizure hearing

    Party obtaining order must prove facts Opposing party may seek modification or dissolution Court may modify time limits for discovery

    Action for damages caused by wrongful seizure


  • Injunctive and Monetary Remedies

    Injunctive relief Limitations on preventing a person from entering an employment

    relationship Cannot conflict with applicable State law prohibiting restraints on

    practicing a lawful profession, trade, or business

    Damages Exemplary damages for willful and malicious misappropriation

    Attorneys fees for: Bad faith claims Willful and malicious misappropriation

    Three year statute of limitations


  • Whistleblower Protections

    Immunity under Federal, State, and local laws for disclosure of trade secrets if either: Made in confidence:

    To a Federal, State, or local official, or to an attorney; and For the purpose of reporting or investigating a suspected violation of law; or

    Made in a complaint or other document filed in a lawsuit or other proceeding, if filed under seal

    Immunity for disclosure in an anti-retaliation lawsuit


  • Notice Provision

    In order to take advantage of potential exemplary damages and attorneys fees, employers must: Notify employees of whistleblower immunity in trade secrets or

    confidentiality agreements Employee is defined broadly An employer may provide notice by cross-reference to a policy document

    But remember: These remedies may be available under state laws

    Applies to contracts entered into or amended after May 11, 2016


  • DTSA v. UTSA: A Comparison

  • DTSA/UTSA Comparison of Key Provisions


    Key Statutory Provisions DTSA UTSA

    Definition of Trade Secret See Slide 9

    Similar except: covers all information, rather than the six specific types enumerated in DTSA and does not require that owner be the one to keep information secret

    Definition of Misappropriation See Slide 10 Substantively the same

    Definition of Improper Means See Slide 10 Substantively the same

    Exclusions to Improper Means Reverse engineering, independent derivation, or any other lawful means of acquisition

    Discovery by independent invention; discovery by reverse engineering; discovery under a license from the owner of the trade secret; observation of the item in public use or on public display; obtaining the trade secret from published literature

    Civil Seizure Provision See Slides 11 - 13

    N/A Note: Some states permit ex parte writ of replevin through which plaintiff may obtain possession of property prior to final judgment

    Injunctive Relief Limitations on restricting employment Inevitable disclosure theory not available

    Restrictions on employment may be available Inevitable disclosure theory may be available

    Exemplary Damages and Attorneys Fees Available if provide notice of whistleblower rights Available without notice provision

    Whistleblower Provision See Slide 15

    N/A Note: Some states, nevertheless, have broad whistleblower protections provided in other statutes

    Statute of Limitations 3 years 3 years

  • Key Takeaways

  • 3 Key Takeaways

    Federal Court option Extraordinary circumstances needed for civil seizure State law claims likely added to DTSA claim initially


  • Tips and Best Practices for Employers

  • Tips and Best Practices

    Evaluate whether existing agreements require amendment Consider including notice provision in contracts going

    forward May be done by cross-reference to a policy document

    Consider auditing existing trade secret protections Consider developing response plan for threatened and

    actual misappropriation of trade secrets


  • Questions?

  • Thank You

    Cardelle B. Spangler Partner, Labor & Employment


    [email protected]

    Daniel J. Fazio Partner, Labor & Employment


    [email protected]

    Defend Trade Secrets Act:What You Need to KnowTodays eLunch PresentersAgenda for Todays PresentationDTSA Overview History of DTSAPurpose of DTSADTSA Key ProvisionsKey Provisions of DTSAFederal Civil RemedyFederal Civil Remedy cont.Civil Seizure ProcedureCivil Seizure Procedure cont. Civil Seizure Procedure cont.Injunctive and Monetary RemediesWhistleblower ProtectionsNotice ProvisionCLE Presentation CodeDTSA v. UTSA: A ComparisonDTSA/UTSA Comparison of Key ProvisionsKey Takeaways3 Key TakeawaysTips and Best Practices for EmployersTips and Best PracticesCLE Presentation CodeQuestions?Thank You