The Defend Trade Secrets Act of 2016

You Asked.BlogQ: What is the Defend Trade Secrets Act, and what does my organization need to do to comply?

A: On May 11, President Obama signed the Defend Trade Secrets Act of 2016 (DTSA), which allows employers to file private civil suits in federal court for the misappropriation (e.g., theft) of their trade secrets. Prior to DTSA, companies usually brought lawsuits under their state’s version of the Uniform Trade Secrets Act of 1985 (UTSA). However, states often implemented the UTSA differently, leading to major inconsistencies from state to state. One of the objectives in passing DTSA was to eliminate those inconsistencies.

An employer that prevails in a lawsuit brought in federal court under the DTSA can receive monetary damages; injunctive relief, to prevent continued misappropriation of trade secrets; and attorney’s fees.

Under the DTSA, whistle-blowers will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made confidentially to a government official, as long as it is only disclosed for reporting or investigating a suspected violation of law, or is made in a complaint or other document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to the public. In addition, an individual who files a lawsuit for retaliation stemming from an employer’s suspected law violation may disclose trade secret information to a certain extent in the legal proceeding.

To take advantage of DTSA’s protections, an employer must include the DTSA whistle-blower immunity notification in any trade-secret confidentiality agreement entered into or updated after May 11, 2016. Employers can also comply by cross-referencing a policy provided to the employee that details the employer’s policy for reporting a suspected violation of law. Failure to provide this notice to an employee the employer later sues may bar the employer from receiving punitive damages or attorney’s fees.

The DTSA does not preempt existing state laws based on the UTSA, so an employer may have protections under both laws.

It is unclear whether an employer needs to include the exact language from the DTSA or is able to tailor the language to its needs. Accordingly, MSEC will approach the matter conservatively and use language directly from the DTSA. That language is too cumbersome to repeat here, but will be available from MSEC’s attorneys this week.

Send your questions to cgraves@msec.org. Please tell us if you would prefer your identity not be mentioned in our answer.