Protecting Your Business under the Defend Trade Secrets Act

Overview: The Defend Trade Secrets Act of 2016 ("DTSA") creates a private, federal civil remedy for trade secret misappropriation, thus adding an additional layer of protection for employers. Under federal law, a trade secret can be any form of financial, business, scientific, technical, economic, or engineering information, as long as its owner has taken reasonable measures to keep it secret and the information derives independent economic value from not being known or ascertainable by others. If a trade secret is misappropriated, it is either acquired or used by a person through improper means, such as by theft, bribery, or a breach of duty.

Time Period: An employer may now sue for trade secret misappropriation within 3 years after the date on which the misappropriation is discovered or reasonably should have been discovered. Note that this is a shorter time period than under Ohio trade secret laws.

Remedies: The DTSA provides various remedies for employers injured by misappropriation:

  1. Injunctions: used to either require affirmative action by the perpetrator to protect the trade secret, or to prevent the perpetrator from committing actual or threatened misappropriation, so long as it does not prevent the perpetrator from entering into employment or improperly restrains trade under Ohio law.
  2. Royalties: if injunctions are not equitable, a court may condition future use of the trade secret on the perpetrator paying a reasonable royalty.
  3. Damages:

a. For actual loss caused by the misappropriation
b. For any unjust enrichment by the perpetrator
c. For punishment due to "willful or maliciously misappropriated" behavior
d. For reimbursing attorney's fees caused certain actions in bad faith

  • Seizure orders: in "extraordinary circumstances," seizure orders permit federal marshals to take any property necessary to prevent the dissemination of a stolen trade secret, without any notice to the perpetrator. To obtain an order, the accuser must file an application (similar to an affidavit or complaint) that meets various statutory requirements under the Act.
  • Criminal penalties: the greater of $5 million or three times the value of the trade secret

Exception: The DTSA creates immunity for whistleblowing employees who disclose a trade secret for the sole purpose of reporting or investigating a suspected violation of law. This immunity is available if made in confidence to a government official or attorney, as well as in a complaint or document filed under seal in a lawsuit or proceeding. Furthermore, an employee who sues an employer for retaliation may disclose the trade secret to an attorney or in a court proceeding if he or she files any document containing the trade secret under seal and does not disclose it (except pursuant to court order).

Notice: Due to the grant of immunity, the DTSA requires notice by employers. An employer must provide notice in any contract or agreement with an employee (including any contractor or consultant) that governs the use of a trade secret or other confidential information, such as employment or non-disclosure agreements. If an employer fails to provide notice, they cannot recover punitive damages or attorneys' fees in any subsequent action. Notice may be provided in one of two ways:

  1. Language in the agreement itself or

    Example: I understand that notwithstanding the foregoing, nothing in this Agreement prohibits me from reporting to any governmental authority information concerning possible violations of law or regulation and that I may disclose trade secret information to a government official or to an attorney and use it in certain court proceedings without fear of prosecution or liability provided I do so consistent with 18 U.S.C. § 1833. (Please note that this example has NOT been analyzed in court - we will be sure to inform you of any decisions that create different requirements or language).
  2. A cross-reference to another policy document, provided to the employee, that sets forth the reporting policy for a suspected violation of law. This option allows employers to satisfy the requirement without having to add elaborate language to their agreements.

Ultimately, the DTSA is designed to provide employers with the opportunity to take stock of their valuable trade secrets and enter into stronger confidentiality agreements with their employees. We encourage you to contact us if you have any questions about this new federal law.