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EMPLOYMENT & LABOR LAW
NEWS
Special Alert - May
2016
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The Defend Trade Secrets Act – What
Employers
Should Know
By: Richard S.
Zackin On May 11, 2016, President Obama signed into law
the Defend Trade Secrets
Act of 2016 ("the Act"). The Act
applies to trade secrets related to products or services used
in or intended for use in interstate or foreign commerce. The
Act amends the Protection of Trade Secrets Act, 18 U.S.C. §§
1831-39, by granting jurisdiction to the federal courts to
entertain civil actions to protect such trade secrets.
The definition of "trade secret" set forth in § 1839
is unchanged: trade secrets are "all forms … of financial,
business, scientific, technical, economic, or engineering
information … 'if' … the owner (A) has taken reasonable
measures to keep such information secret and (B) the
information derives independent economic value, actual or
potential, from not being generally known to … the public
..."
The Act applies to misappropriations or
threatened misappropriations of trade secrets occurring after
May 11, 2016 and provides a 3-year statute of limitations.
Under the Act, a misappropriation may occur by "theft,
bribery, misrepresentation, breach or inducement of a breach
of duty to maintain secrecy, or espionage through electronic
or other means." The Act, however, expressly excludes reverse
engineering from the definition of misappropriation.
Of special interest to employers are the following
aspects of the Act:
Persons
Liable: Those subject to liability under the
Act include both the persons committing the misappropriation
and those who acquire, disclose, or utilize the trade secret
knowing or having reason to know the trade secret was obtained
by improper means. Thus, the Act clearly reaches a new
employer who knows or has reason to know of a trade secret
misappropriation by the trade secret owner's former
employee.
Injunctions:
The court may enjoin an actual or threatened misappropriation
of a trade secret but may not enjoin an employee alleged to
have engaged in misappropriation from entering into a new
employment relationship. For purposes of the Act, contractors
and consultants are considered employees. Moreover, although
the court is authorized to place conditions on new employment,
those conditions must be based on evidence of a threatened
misappropriation and cannot be based merely "on the
information the person knows" and the injunction cannot
otherwise conflict with applicable state law prohibiting
restraints of the practice of a lawful profession, trade, or
business. Thus, the Act (1) cannot be used as a substitute for
a covenant not to compete and (2) precludes reliance on the
"inevitable disclosure" doctrine.
Monetary
Relief: The court may award damages for actual
loss resulting from the misappropriation and/or damages for
unjust enrichment. Alternatively, the court may award a
reasonable royalty for the unauthorized use of the trade
secret. Attorneys' fees and exemplary damages, up to two times
the amount of actual damages, may be awarded if the trade
secret is "willfully and maliciously" misappropriated. On the
other hand, if a claim of misappropriation is made in "bad
faith," the defendant may be awarded attorneys' fees.
Whistleblower
Protection: The Act grants immunity from
criminal and civil liability under both federal and state law
to an individual who discloses a trade secret to a federal,
state, or local government, or to an attorney solely for the
purpose of reporting or investigating a suspected violation of
law. Immunity also attaches if the trade secret is disclosed
in a lawsuit for retaliation against an employer for reporting
a violation of law, provided the trade secret is filed under
seal. Moreover, commencing on the effective date of the Act
(May 11, 2016), new trade secret protection agreements or
updates to prior agreements must either expressly notify
employees of the Act's immunity provisions or refer the
employee to a written company policy that provides such
notice. If such notice is not provided, the employer will be
precluded from recovering exemplary damages and attorneys'
fees under the Act.
Seizure
Provisions: The Act provides for the seizure
of property necessary to prevent the propagation or
dissemination of trade secrets. The court may issue a seizure
order based on an ex parte application, in other
words, without notice to the party against who the seizure
order will be directed, but only in "extraordinary
circumstances," which the Act defines as follows: when (a) an
injunction order issued under Rule 65 of the Federal Rules of
Civil Procedure would be inadequate because the party to be
subjected to the order would evade, avoid, or otherwise not
comply with the order; (b) there would be immediate
irreparable injury to the party seeking the seizure order; and
(c) the harm to the party seeking the seizure order if the
order is not granted will outweigh the harm to the defendant
or to third persons if the order is granted. However, the Act
also provides a cause of action for damages sustained by a
person by reason a wrongful or excessive seizure, and the
court may require the person seeking the seizure order to post
security to cover such damages.
State Law:
The Act does not preempt state statutory law or common law
providing trade secret protection.
Best practices:
- Now is a good time for employers to review
their trade secret and covenant not to compete agreements
for compliance with both federal and state law.
- Employers should make sure their employment
or trade secret agreements expressly mandate that new
employees not disclose or use the trade secrets or
confidential information of their former employers.
- Employers should update their trade secret
protection agreements moving forward to conform to the Act's
Notice of Immunity Provisions Act and make sure their
anti-retaliation policies take the Act into account.
- If legal action is contemplated against
employees, former employees, or others for trade secret
misappropriation, careful consideration must be given to the
decision whether to proceed under the Act or under State law
in terms of the scope of trade secret protection, the
ability to obtain injunctive relief, and the available
remedies.
Attorneys in the
Gibbons Employment &
Labor Law Department are
available to answer your questions and assist you with these
issues. | |
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Gibbons is headquartered at One Gateway Center,
Newark, NJ 07102; (973) 596-4500
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