Defend Trade Secrets Act of 2016: Changes That Every Company Should Consider

On May 11, 2016, the Defend Trade Secrets Act of 2016 (“Act”) became law. The Act amends Chapter 90 of United States Code title 18, which can be found at 18 U.S.C. § 1831 et seq. Below is a summary of some of the more significant impacts of the Act that are particularly relevant to employers.

First, the Act creates a civil federal trade secrets misappropriation claim. See 18 U.S.C. § 1836. Thus, if an employee misappropriates trade secrets, a company now will now often have a uniform nationwide claim, have the option of bringing the claim in federal court, or asserting a federal trade secret claim in state court.

Second, the Act allows for damages that often are not available under state law. If a trade secret is willfully and maliciously misappropriated, a court can award exemplary damages in the amount of double the actual damages and award attorney’s fees. However, if a claim of misappropriation is made in bad faith, the employer that made that bad faith claim can be liable for attorney’s fees.

Third, the Act specifies that whistleblowers are entitled to protection for violations of the Act. The Act instructs employers to add in language such as below to all trade secret or confidentiality agreements:

IMMUNITY. An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

An employer can also meet this requirement if it provides a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.

If an employer fails to include this language or a cross reference, then the employer is not permitted to seek exemplary damages or attorney’s fees under the Act. See 18 U.S.C. 1833(b)(3)(C). Further, the requirement to include this language only applies to contracts and agreements entered into or updated after enactment of the Act. Thus, an employer does not need to add in the immunity language to existing contracts. However, an employer likely will want to add the language into future contracts, and may want to consider updating all existing contracts to include the language, so that the employer may have the ability to obtain exemplary damages and attorney’s fees for willful and malicious misappropriation.

Fourth, the Act allows for ex-parte seizures to prevent the propagation or dissemination of trade secrets. This portion of the Act was controversial, as it is a significant remedy that is not offered under state law. This remedy is intended to stop the dissemination of trade secrets before immediate and irreparable injury. This remedy seems particularly targeted to the fear of information being disseminated abroad. However, there is a high bar to obtaining ex-parte seizures, and it is only available in extraordinary circumstances.

If you have questions about how to navigate through the Defend Trade Secrets Act of 2016 or have other trade secrets issues, Hooper Hathaway is ready to provide that assistance.