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Defend Trade Secrets Act Signed Into Law

May 24, 2016

On May 11, President Obama signed the Defend Trade Secrets Act (DTSA) into law. The DTSA gives employers an enhanced ability to enforce provisions in employment or other agreements that contain prohibitions on an employee's misappropriation and use of trade secrets and what would otherwise be considered confidential information. This has significant implications when employees leave, take information, and violate agreements containing restrictive covenants, including those prohibiting the taking and use of information such as client lists.

The DTSA

The DTSA now gives employers the right to sue former employees in Federal court when trade secrets have been misappropriated. It also creates liabilities for those who conspire to misappropriate trade secrets, often, the former employee's new employer. The penalties under the DTSA are robust and provide for a multiple of damages and attorney's fees to be awarded to a successful plaintiff in certain circumstances. Also, the DTSA gives employers the ability to obtain a court order compelling the return of pilfered information, when it can be demonstrated that the person taking the information at issue "would destroy, move, hide, or otherwise make such matter inaccessible to the court..." As importantly, this can be done unilaterally without first notifying the employee that he or she is being sued.

The DTSA is not entirely without advantage for employees. It provides immunity for "whistleblowers," meaning that information divulged to government or court officials in confidence will not violate agreements that would otherwise restrict such disclosure. For a company to obtain the increased protections of the DTSA, agreements must advise employees of this whistleblower immunity. In other words, where the agreement restricts the use of trade secrets and/or confidential information, and provides notice of the whistleblower immunity, the DTSA will operate to afford greater protection to employers.

Next Steps

The DTSA permits employers to have the Federal courts resolve claims that employees took trade secrets and information such as client lists. An employer's ability to use the Federal courts to recover a multiple of damages and attorney's fees is a significant new tool to discourage employees from misappropriating such information. The new law also creates an important weapon to use against companies that hire employees who have brought such information from a prior employer.

Employers should give serious consideration to include appropriate language in future agreements to avail themselves of the DTSA, including providing notice of the whistleblower immunity, and to modify existing agreements, policy manuals and handbooks that contain trade secret protection and confidentiality provisions.

It is also recommended that employers inventory their trade secrets and information considered confidential, and assess the existing protections in place. Taking deliberate steps to treat such information as confidential, such as restricting access to key files only to "need to know" employees, and implementing detailed business-wide policies concerning highly sensitive data, is a recommended initial strategy. Doing so will show a court that protective measures were taken to prevent against intentional, careless or unintentional disclosures thereby demonstrating that the information is worthy of protection and that intentional taking and use of such information warrants full protection of the new law.

Having a response plan in place in the event of an employee's departure with trade secrets or confidential information will help support the required showing that the employer maintained the information at issue as a trade secret and avoid unnecessary cost and delays involved in a factual dispute regarding this issue. It will also assist counsel by allowing quick access to the facts critical to a successful, prompt and cost-effective outcome in court.

Finally, employers are urged to develop plans to "sanitize" new hires to make sure they are not bringing trade secrets or confidential information of former employers to your workplace. This can include obtaining representations from the new hire that such information is not in their possession and alerting them to your policies relating to such information.

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Drogin, Laurent S. Partner and Chair of Labor and Employment Practice and Co-Chair of Restrictive Covenant Practice Partner and Chair of Labor and Employment Practice and Co-Chair of Restrictive Covenant Practice 212.216.8016 VCard
Kleinmann, David N. Partner and Co-Chair of Restrictive Covenant Practice Partner and Co-Chair of Restrictive Covenant Practice 212.216.1115 VCard

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