While trade secrets may be among a company’s most valuable assets, they are also among the most vulnerable. U.S. companies lose billions of dollars annually due to trade secret theft, and the vast majority of these losses can be traced to current or former employees. Protecting trade secrets and preventing their disclosure has become more difficult in today’s electronic age, but help is on the way.
On May 11, President Obama signed the “Defend Trade Secrets Act of 2016,” or DTSA, into law. The DTSA took effect May 12. It creates a new federal cause of action for employers victimized by trade secret theft. This new law will have a major impact on trade secret litigation and requires employers to take immediate steps to notify employees of its protections.
Employers have more predictability and access to the federal courts
Until last week, trade secrets were governed exclusively by state law. Although 48 states (including Idaho) have adopted some variation of the Uniform Trade Secrets Act, or UTSA, differences from state to state created a patchwork of trade secret laws across the country. Idaho employers with operations in other states face the challenge of keeping up and complying with these laws.
The DTSA is expected to minimize this burden by giving employers nationwide trade secret protection. The new law does not eliminate state trade secret laws, nor does it prevent Idaho employers from suing an employee in Idaho state court for trade secret theft. Rather, it provides employers with additional protection and an alternative forum (federal court) for trade secret litigation. Litigating in federal court may be advantageous to some employers, particularly those in states faced with a large backlog of cases in their state courts.
Employers can seek seizure of property
The remedies available to employers under the new law are similar to those available under the UTSA. These include: (1) injunctive relief to prevent disclosure of trade secrets; (2) money damages; (3) enhanced damages of up to twice the amount of actual damages; and (4) attorneys’ fees. The new law expands these remedies by authorizing courts to seize property to prevent the “propagation or dissemination” of trade secrets—a remedy unavailable under Idaho law.
Seizure may prove to be a powerful tool for Idaho employers in trade secret litigation, but employers must be cautious. The remedy is limited to “extraordinary circumstances,” and employers will be expected to meet a very high burden to obtain a seizure order. Recognizing the potential abuse of this provision, the new law creates a cause of action for “wrongful or excessive seizure.” Therefore, to avoid bringing lawsuits upon themselves, employers must be judicious when asking courts to order the seizure of property.
Employers should immediately revise form employment agreements
The DTSA requires employers to provide employees with written notice of its immunity provision. This provision protects whistleblower employees who confidentially disclose trade secrets under certain circumstances, including to report a “suspected violation of law.” Employers must provide written notice of this immunity “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Failure to include this notice will deprive employers of the ability to recover enhanced damages or attorneys’ fees in lawsuits under the DTSA. To comply with this new law, and to preserve all available remedies, Idaho employers should immediately revise form employment agreements and non-disclosure agreements to incorporate this notice requirement.
Although the DTSA provides employers with additional tools to use in trade secret litigation, employers must remain proactive and take reasonable measures to protect their trade secrets and confidential information. Idaho employers should strongly consider contacting an attorney to ensure compliance with the DTSA and to confirm that they have implemented reasonable steps to protect their trade secrets.
Dana Herberholz is a shareholder in the Boise office of Parsons Behle & Latimer and the chairperson of the firm’s Intellectual Property Litigation Practice Group. Dylan Eaton is a senior associate attorney in the Boise office of Parsons Behle & Latimer. He is a civil litigator and chairman of the Idaho State Bar Association, Employment & Labor Law Section.