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The Defend Trade Secrets Act: A Powerful New Tool For Business Owners

By Katherine S. DiDonato of Shustak Reynolds & Partners, P.C. posted on Thursday, May 19, 2016.

President Obama recently signed into law the Defend Trade Secrets Act (“DTSA”) of 2016, which gives holders of trade secrets a new and powerful option to bring trade secret lawsuits under federal law. Previously, only state law authorized lawsuits of this type, which gave rise to a patchwork of trade secret laws that created uncertainty in an ever-growing global market. This new law also gives owners of trade secrets—typically businesses and employers—the right to bring a private action under the Economic Espionage Act of 1996, and the ability to pursue these claims in federal court.

The DTSA has broad reaching implications, as it governs a wide range of business activities, including, among other things, the hiring and firing of employees, certain company policies and procedures, non-disclosure and confidentiality clauses contained in business contracts, and even an employee’s discussions of company business with a business partner, the public, or family and friends. Federal courts will have non-exclusive jurisdiction to hear claims brought under the DTSA, giving plaintiffs the option of pursuing those claims either in state or federal court. Previously, plaintiffs could only bring trade secret claims in federal court if they met certain diversity requirements or were bringing other federal claims. Results may vary for claims brought under federal and state trade secrets laws. Plaintiffs will have to strategize whether to bring claims under federal or state law, or whether to pursue both at the same time.

The DTSA has serious teeth, allowing plaintiffs to recover money damages, “exemplary damages” of up to two times the amount of actual damages, and attorneys’ fees.  The law also allows plaintiffs to seek injunctive relief on an ex parte (e.g., expedited) basis, including an order to seize allegedly stolen trade secret items in a defendant’s possession. These orders may be granted to prevent the wrongful propagation or dissemination of the trade secret. This is a new concept in the world of trade secrets, as no current state or federal allows such a seizure. The closest comparison would be a temporary injunction or restraining order, which are granted only in limited circumstances. How this new injunctive relief will play out in the court system, and how freely judges will dole out what could be an extremely powerful injunctive remedy, remains to be seen.

Employers must give employees notice of certain DTSA exceptions to be eligible to recover exemplary damages and attorneys’ fees.  That notice must explain that an employee may disclose trade secret information to federal, state, or local government officials, or to an attorney, solely for the purpose of reporting or investigating suspected violations, or in a complaint or other litigation document if the filing is made under seal.  Employers, take note:  The notice requirements will apply to all contracts entered into or amended after May 11, 2016.

The DTSA will have wide ranging effects in the business world and will be a powerful tool for employers looking to protect their trade secrets. Shustak Reynolds & Partners, P.C. represents businesses and individuals in a wide range of business and employment disputes.  Contact our San Diego business and trade secret lawyers today for a confidential analysis of your situation.

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