U.S. Enacts Law to Strengthen Trade Secrets Protection

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U.S. Enacts Law to Strengthen Trade Secrets Protection

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (“the DTSA”). Trade secrets can include confidential business information such as business and marketing plans; financial information; customer lists; technical, scientific and engineering data, research and designs. The DTSA became effective immediately.
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US domestic businesses and foreign businesses operating in US should know at least three things about the DTSA.

First, the DTSA provides a federal civil cause of action for misappropriation of trade secrets. Prior to the DTSA, you generally could only bring a trade secrets misappropriation lawsuit in a state court, under state law. Because trade secrets protection laws would vary from state to state, your case would face a great deal of uncertainty. Now, under the DTSA, you should be able to litigate in a federal court before a bench with deeper experience in complex, inter-jurisdictional disputes. Ultimately, federal cases will be governed by a uniform body of federal trade secret law subject to US Supreme Court review, just like patent and copyright laws.

However, unlike patent and copyright laws, the DTSA does not eliminate or preempt state trade secrets rights and causes of action. Just like in trademark lawsuits, you can assert a violation of state trade secrets rights in addition to your federal claim.

Second, the DTSA provides additional powerful (“enhanced”) remedies for trade secrets misappropriation. In addition to traditional injunctive relief and damages, the DTSA gives the court the power to award “exemplary damages in amount not more than 2 times the amount of the [actual] damages” and reasonable attorney’s fees to the prevailing party.

The award of attorney’s fees can be a significant remedy, as the attorney’s fees in US generally are paid by each party irrespective of the outcome of litigation. The DTSA provides that if “trade secret was willfully and maliciously misappropriated,” among other instances, the court may award reasonable attorney’s fees to the prevailing party.

The DTSA also introduces a new remedy: a so-called ex parte seizure that allows plaintiffs to ask courts to order law enforcement officials to seize any property "necessary to prevent the propagation or dissemination of the trade secret" without a hearing or answer from the accused party, pending a full hearing. The ex parte seizure is somewhat similar to a temporary restraining order (TRO) and is available under “extraordinary circumstances,” where typical injunctive relief would be insufficient or ineffective.

Third, the DTSA requires employers to notify their employees of the so-called “whistleblower” immunities, that is immunities from liability for disclosure of trade secrets of individuals who disclose trade secrets in certain situations: to government officials or the individuals’ lawyers. Employers who often become victims of trade secrets misappropriation by current or former employees should be aware that they may lose enhanced remedies if they fail to notify their employees of the “whistleblower” immunities.
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Thus, employers should review their policies and employment agreements and make sure they add some new provisions and disclosures.

Overall, the enactment of the DTSA is a positive development for protection of businesses’ intellectual property. To be able to fully utilize the DTSA’s new features, businesses and their counsel should undoubtedly familiarize themselves with this new law without delay.

Text © Maxim A. Voltchenko 2016

* This piece is not intended to be a review of U.S. intellectual property laws. This posting may not necessarily represent the views of the author’s employing law firm. Although every effort has been made to verify the accuracy of items in the Sputnik Blog®, readers are urged to check independently on matters of specific concern or interest.