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AUDIO CONFERENCE ON
The Defend Trade Secrets Act: New Rights and Obligations for U.S. Employers
June 21, 2016
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The Defend Trade Secrets Act: New Rights and Obligations for U.S. Employers
Tuesday, June 21, 2016
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David S. Fortney FortneyScott Washington, DC [email protected] Steven M. Gutierrez Holland and Hart Denver, CO [email protected]
Speakers
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Daniel H. Handman Hirschfeld Kraemer Santa Monica, CA [email protected] Scott A. Holt Young Conaway Stargatt & Taylor Wilmington, DE [email protected]
Speakers
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Defend Trade Secrets Act: Overview
Scott A. Holt
Young Conaway Stargatt & Taylor
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• Signed into law on May 11, 2016 • Amends Economic Espionage Act of 1996 • Creates a federal private right of action to
protect trade secrets • Recovery of treble damages and fees • Limited right to seize property • Protections for “whistleblowers”
Defend Trade Secrets Act of 2016 (DTSA)
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• Trade secret laws • State law
– 48 states - Uniform Trade Secrets Act (UTSA) – MA and NY – common law claim for trade
secrets
• Federal law – Copyright, patent, and trademark laws – Economic Espionage Act of 1996 (EEA) Criminalized trade secret theft, but no private remedy
Why the Change
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• Commission on the Theft of American IP – 2013 report on U.S. trade secret theft Cost to U.S. companies = hundreds of billions of
dollars Loss of millions of jobs
• US Attorney General – Only two categories of companies affected by
trade-secret theft: “Those that know they’ve been compromised” “Those that don’t know yet”
Growing Problem of Trade Secret Theft
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• Trade secret theft – Rogue employees – Advances in technology – Often occurs across state/national borders – Overseas cyber-espionage Some working in collusion with foreign governments
Difficulties Protecting Trade Secrets
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• Limited remedies available under state law – Problem with filing/enforcing in multiple states – Inefficiencies – Inconsistencies – Jurisdiction
Difficulties Protecting Trade Secrets
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• Similar definition of “trade secrets” • Identical definition of “misappropriation” • Similar remedies
– Injunctive relief to prevent actual/threatened misappropriation
– Actual damages – Exemplary damages and attorneys’ fees for willful and
malicious misappropriation – 3-year statute of limitations
• Bad faith provision
How is DTSA Similar to UTSA?
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• Access to federal courts without the need for diversity of jurisdiction
• Authorizes ex parte seizures in limited circumstances
• Immunity for whistleblowers who disclose trade secrets to authorities
• Requires written notices in agreements, policies • No federal preemption of state law
– Companies can bring claims under DTSA and UTSA
What Has Changed under the DTSA?
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• Why was Ex Parte seizure adopted? – Technology advances and ease of transporting
information made it easier to steal trade secrets – Need for immediate protection
• Recognized need to balance harm – Fear of dissemination vs. infringement of property
rights – Limitations designed to minimize harm to 3rd parties – Goods seized kept custody of the court pending a
determination as to the misappropriation
DTSA – Ex Parte Seizure
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• Protection of Whistleblowers – Immunity from criminal/civil liability Disclosure to gov’t or attorney
– Employer notice requirement Immunity provision in any contract or agreement with
an “employee” that governs the use of a trade secret or other confidential information
• Limits on injunctive relief – “May not prevent a person from entering into an
employment relationship”
Whistleblower and Employee Protection
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• Courts – DTSA will be interpreted broadly
• 1st year after enactment – US Attorney General and other agencies Issue Report
– Status and impact of trade secret laws (domestic & int’l) – Recommendations to further reduce threats
• 2nd year after enactment – Fed. Judicial Center to review ex parte seizure
rule
What Happens Next?
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How the DTSA Will Impact Employers
David S. Fortney
FortneyScott
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• DTSA provides a new, powerful federal remedy for employers to address trade secret theft by employees, consultants, and contractors
• Includes immunity from liability for confidential disclosure of a trade secret to the government or in a court filing – Permits an individual who files a lawsuit against
an employer for retaliation to disclose a trade secret to his or her attorney or in a court proceeding
Key Provisions Affecting Employers
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• Employers must provide notice of immunity in contracts and agreements to be awarded exemplary damages and attorney fees from employees engaging in trade secret theft
Key Provisions Affecting Employers (cont’d)
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• Employers have a uniform federal remedy to seek redress when employees steal trade secrets – Allows for the recovery of damages, injunctive
relief, and ex parte seizures – Covers domestic and international acts
• The DTSA does not pre-empt state law – Non-competes – Confidentiality
New Remedies Against Employee Theft of Trade Secrets
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• “Employees” is broadly defined and includes employees and “any individual performing work as a contractor or consultant for an employer”
New Remedies Against Employee Theft of Trade Secrets (cont’d)
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• The DTSA provides immunity from civil or criminal liability “under any Federal or State trade secret law” for disclosing a trade secret in limited circumstances: – In confidence to a government official or an
attorney, “solely for the purpose of reporting or investigating a suspected violation of law,” or
– “In a complaint or other document” filed under seal in a lawsuit or other proceeding
Whistleblower Immunities – Exception to Prohibited Disclosures
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• An individual who files a lawsuit against an employer for retaliation for reporting a suspected violation of law may disclose a trade secret to his or her attorney and use the secret in the court proceeding if the individual: – Files any document containing the trade secret
under seal, and – Does not disclose the trade secret, except
pursuant to court order
Whistleblower Immunities – Exception to Prohibited Disclosures (cont’d)
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• An employer must satisfy notice requirements to receive punitive damages and attorney fees
• Employers must give notice of the whistleblower immunities to employees, consultants, and contractors in any contract or agreement entered into after May 11, 2016 that governs the use of trade secrets or other confidential information
New Whistleblower Notice Requirements
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• Two options: – “Cross-reference to a policy document provided
to the employee that sets forth the employer’s reporting policy for a suspected violation of law” OR
– Separate notice
• The DTSA does not provide specific language that must be used
How to Provide Notice
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Steps Employers Should Take
Steven M. Gutierrez Holland and Hart
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• Include the required whistleblower/immunity notice to employees in all relevant employment, contractor, and consultant agreements to ensure that punitive damages and attorney fees can be recovered – E.g. employment agreements, severance
agreements, non-compete and non-solicitation agreements, confidentiality agreements
– Do you re-open current agreements to add new provisions?
– How far down the supply chain should you go?
Key Take-Aways for Employers
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• Determine whether your current whistleblower policy meets the DTSA notice requirements
• Include in-compliance and whistleblower training for employees, contractors, and consultants
Key Take-Aways for Employers (cont’d)
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Failure to Include Immunity Notice
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• In an action against an employee to whom notice was not provided: – No exemplary damages – No attorney fees
• For immunity notice, DTSA defines “employee” as any individual performing work as a contractor or consultant for an employer
Expanded Employee Definition
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• Non-disclosure agreements • Trade secret agreements • Confidentiality agreements • Non-competes that have a confidentiality
provision • Assignment of inventions agreements • Separation/severance agreements • Settlement agreements
Add to Which Agreements?
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• Immunity notice is not mandatory – but it negates recovery of double damages and fees
• It arguably highlights the employee’s ability to disclose trade secrets when whistleblowing
• Likely want to add to all agreements signed at the beginning of employment
• For separation/severance agreements, consider whether highlighting the whistleblower procedure is problematic
Potential Cost/Benefit Analysis
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• Make sure the venue and choice of law clauses in agreements permit for resolution under the DTSA in federal court
Update Venue and Choice of Law
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• Employers with operations that haven’t passed UTSA (e.g., NY and MA) need to ensure that definitions of trade secrets, misappropriations, and other defined terms include DTSA definitions
If In Non-UTSA States
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• DTSA whistleblower immunity notice provision applies only to contracts entered into or updated after the enactment (May 11, 2016)
New Agreements Only
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• Will employer’s likelihood/tolerance for enforcing trade secret protections increase due to federal court option?
• Revisit protections used to maintain confidentiality of trade secrets
• Take whistleblower claims seriously - try to resolve internally before trade secrets need to be revealed to outside attorneys or in court
Additional Considerations for Employers
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• Civil seizure available only in extraordinary circumstances
• Based on affidavit or verified complaint • Allows for seizure of property necessary to
prevent the dissemination of trade secret – Computers, external drives, etc.
Consider Ex Parte Remedies
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• Federal law enforcement officer shall serve seizure order and obtain property
• Court may allow state or local law enforcement to participate
• Applicant (or its agent) NOT permitted to participate
• Technical expert not affiliated with either party may participate at the request of law enforcement
Carrying Out Seizure Order
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• A party or person with an interest in the property seized may move to encrypt any material seized
• Motion may be made at any time • May be heard ex parte
Motion for Encryption
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• A person damaged by a wrongful or excessive seizure may seek damages
• Against the applicant of the order under which seizure was made
Damages for Wrongful Seizure
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How Does the DTSA Affect Multi-State Employers?
Daniel H. Handman Hirschfeld Kraemer
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• Section 2(f): “Nothing in the [DTSA] shall be construed . . . to preempt any other provision of law.”
• WHAT DOES THAT MEAN? YOU HAVE A CHOICE.
• But, do you really want to exercise it?
Most Important Provision for Multi-State Employers
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• Employers can still seek remedies in state court on a state law claim
• Most states have adopted some form of the Uniform Trade Secrets Act (except NY and MA.), so there is already a lot of uniformity among states
• But, there are some differences among states
What If State Law Is More Favorable?
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Examples: • “Inevitable disclosure” doctrine (i.e., no need
to prove actual misappropriation • Loose definition of a “trade secret” (some
states do not limit trade secrets to information that is not “readily ascertainable”)
What If State Law Is More Favorable?
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Examples (cont’d): • Damages: Some states allow for significant
damages and penalties • Attorney’s Fees/Expert costs: Some states
have generous fee-shifting provisions
What If State Law Is More Favorable?
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Examples: • Allows for immediate, ex parte injunctive
relief • Three-year SOL • No prerequisites to conducting discovery
(Cal. law – must allege trade secret with particularity before conducting discovery)
• Civil seizure provisions
What If the DTSA Is More Favorable?
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Yes. • A federal court has “original jurisdiction”
over DTSA claims and can exercise “supplemental jurisdiction” over state law claims.
• UTSA pre-empts other civil claims based on trade secret misappropriation. DTSA does not.
Can Employers Bring a Federal and State Claim?
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No. • Under DTSA, courts cannot issue an
injunction that: 1.Prevents a person from entering into an
employment relationship; or 2.Conflicts with state law re: restraints on the
practice of a lawful profession, trade, or business.
Does DTSA Allow for Non-Competes in States that Are Hostile to Them?
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But… • A court can issue an injunction imposing
“conditions on employment” as long as there is “evidence of threatened misappropriation” (i.e., not merely the information the person knows)
• Are employees really going to threaten misappropriation?
Does DTSA Allow for Non-Competes in States that Are Hostile to Them?
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Contact Our Speakers for More Information
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David S. Fortney FortneyScott Washington, DC [email protected] Steven M. Gutierrez Holland and Hart Denver, CO [email protected]
Susan T. Spradley Gray-Robinson
Orlando, FL [email protected]
Daniel H. Handman Hirschfeld Kraemer Santa Monica, CA [email protected] Scott A. Holt Young Conaway Stargatt & Taylor Wilmington, DE [email protected]
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