New Federal Trade Secret Law

 PRESIDENT OBAMA SIGNS FEDERAL TRADE SECRETS BILL INTO LAW ON MAY 11
               
Historically, when a trade secret has been misappropriated, the trade secret owner had to rely primarily upon a patchwork of state statutory and common law to stop the misappropriation and obtain damages or other relief.  That changed on May 11, 2016 when President Obama signed the Defend Trade Secrets Act of 2015 (“DTSA”) into law.  The bill amended 18 U.S.C. § 1836(b) to create a federal civil private cause of action for trade secret misappropriation. 

For the first time, plaintiffs can bring a federal cause of action for misappropriation of trade secrets, as long as the trade secret relates to a product or service used or intended for use in interstate or foreign commerce.   The creation of a federal trade secret cause of action also allows the owner of a misappropriated trade secret to sue in federal court without having to bring a state law cause of action and establish diversity jurisdiction.
               
The DTSA adopts the definition of “misappropriation” found in the Uniform Trade Secrets Act (“UTSA”) (previously adopted in most states), while the definition of “trade secrets” in the DTSA is broader than that found in the UTSA.  The DTSA also provides certain remedies to trade secret owners including, without limitation, the ability to obtain a seizure order from the court for “property necessary to prevent the propagation or dissemination of the trade secret;” injunctive relief; damages for actual loss and/or unjust enrichment, or, in the alternative, a reasonable royalty for the unauthorized use or disclosure of the trade secret; and, in cases where willful and malicious misappropriation is demonstrated, exemplary damages of up to 2 times the amount of damages awarded plus reasonable attorney’s fees.
               
There is also a potential trap for the unwary, involving the failure to give a required notice, and added whistleblower protections for employees.  Under the new law, a company’s employees, contractors and consultants are granted immunity under all federal and state trade secret laws for disclosing a trade secret (i) in confidence to any federal, state or local government or an attorney when done solely for the purpose of reporting or investigating a suspected violation of law, (ii) in any court filing made under seal, and/or (iii) to an attorney or in a document filed in court under seal in connection with any lawsuit filed against the employer that alleges retaliation for reporting a suspected violation of law. 

An employer must give notice of this immunity to its employees, contractors and consultants “in any contract or agreement” with them that governs the use of trade secrets or other confidential information. 
If the employer fails to give the required notice, it forfeits the right to obtain exemplary damages and attorney’s fees against such employee, contractor or consultant to whom it failed to give notice in any case brought against such person for misappropriation under the federal law. 

Accordingly, all employers who do require their employees, contractors and/or consultants to sign confidentiality agreements, trade secret agreements or other intellectual property or proprietary rights agreement that may affect the use of trade secrets or confidential information should take the time now to review those contracts with their lawyer and revise these contracts to include the required notice. Otherwise, important remedies might be lost.

Indeed it generally makes sense to review the trade secret strategy of most companies on a regular basis, and this new statute provides a further good reason to do so now. Many companies do not give sufficient time to ensuring continued protection of confidential, non-public information that gives the company a competitive edge until after it has already leaked out to others.

We regularly assist clients in protecting and enforcing confidential and trade secret information, and in defending against allegations of misappropriation or other wrongful conduct by former officers and/or employees.  Our firm was part of the successful appellate team in Taser Int’l, Inc. v. Ward, 231 P.3d 921, 224 Ariz. 389 (Ariz. App. 2010), which provided important clarifications to Arizona law regarding an employee’s rights and duties upon leaving employment. Posted by Sean Garrison on May 14, 2016.