Virtually every employer worries that a departing employee will take with him or her, and disclose to a new employer, things which the employer considers highly confidential, such as a trade secret. Until now, the company’s sole recourse lay in the vagaries of individual state laws. Congress has now eliminated the conundrum of where to file, which state law might apply and what relief would be available. The Defend Trade Secrets Act of 2016 (“DTSA”) provides, for the first time, a federal cause of action for the misappropriation of trade secrets. Further, since it does not preempt state laws in the area, plaintiffs remain free to choose between a federal and a state forum or, arguably, sue in federal court under both the DTSA and the appropriate state statute.
A frequent hurdle in a state action is proving that the subject of the concern is, in fact, a Trade Secret. The expansive definition of trade secret contained in the DTSA should assure that every type of information is covered:
“all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”
So long as: (A) the information is actually secret (not generally known); (B) the owner took reasonable measures to maintain that secrecy; and (C) independent economic value is derived from that secrecy, it is protected. The breadth of “whether or how stored” raises the distinct possibility that information stored only in the employee’s brain is subject to protection.
The DTSA also provides a remedy for the “misappropriation” of a trade secret. Misappropriation is: either (A) acquiring a trade secret that one knows or has reason to know was obtained through improper means; or (B) disclosing or using a trade secret, without permission of the owner, that one: (1) acquired improperly; or (2) knew or had reason to know was obtained or derived from another person using improper means or violating a duty of secrecy.
The “improper means” include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.”
The act does not, however, include the concept of inevitable disclosure found in many state laws.
Unlike traditional trade secret actions, the DTSA provides for the protection of the trade secret even during litigation. The district courts may not “authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential.”
A successful plaintiff employer may obtain: (A) an injunction, (B) damages for actual loss and unjust enrichment, (C) exemplary damages, up to twice the amount of the actual and unjust enrichment damages, with proof of “willful and malicious” misappropriation, or (D) attorney’s fees, if the claim is made or opposed in bad faith or if there is a finding of willful and malicious misappropriation. The statute also provides for the ex parte seizure of the material at issue under extraordinary circumstances.
As with most “gifts” from Congress to employers, the DTSA is not without its “hooks.”
First, standing to bring suit under the DTSA lies solely with the “owner” of the trade secret. However, the definition of “employee” is clearly broad enough to include contractors and consultants who perform work for the employer/owner.
Second, it provides certain protection for the employee, including immunity under specific circumstances. Suit may not be brought against a person who discloses a trade secret if the disclosure is made in confidence to a government official, directly or indirectly, or to an attorney, if it is made “solely for the purpose of reporting or investigating a suspected violation of law” – i.e., a whistleblower.
Finally, if the employer wishes to recover the exemplary damages and attorneys fees, the defendant/employee must have been given notice of the employee immunity provisions. The notice must be included in any agreement or policy dealing with confidentiality that is applicable to employees, contractors or consultants. In order to meet this requirement, employers should amend their employee handbooks and assure that, going forward, all written agreements with employees, contractors and consultants include effective notice language. Where written agreements are already in effect, consideration should be given to a separate “Notice” distribution to employees, so as not to forfeit the possibility of exemplary damages and attorneys fees.
For more information on DTSA as well as employee handbook/written agreement updates, please contact Kathleen Mill or Jacob Sitman from our Employment Law and Labor Relations Group at Fitzpatrick Lentz & Bubba, P.C.
