Defend Trade Secrets Act: What You Need to Know
May 31, 2016
Today’s eLunch Presenters
Cardelle B. Spangler Partner, Labor & Employment
Chicago
Daniel J. Fazio Partner, Labor & Employment
Chicago
Agenda for Today’s Presentation
• Overview • Key Provisions • Comparison to Uniform Trade Secrets Act • Important Takeaways • Tips and Best Practices for Employers
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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
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Purpose of DTSA
• Help combat the continued and growing threat of trade secret misappropriation
• Help businesses safeguard their trade secrets in federal
court
• Address perceived shortfalls in protections offered by the States under the Uniform Trade Secrets Act
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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
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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 information…whether 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.”
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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.
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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
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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
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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
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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
• Attorney’s fees for: • Bad faith claims • Willful and malicious misappropriation
• Three year statute of limitations
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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
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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
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DTSA v. UTSA: A Comparison
DTSA/UTSA Comparison of Key Provisions
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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
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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
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Questions?
Thank You
Cardelle B. Spangler Partner, Labor & Employment
Chicago
Daniel J. Fazio Partner, Labor & Employment
Chicago
