Congress Passes Defend Trade Secrets Act of 2016 (DTSA) and Imposes New Employer Whistleblower Immunity Notice Obligation

Tuesday, May 10, 2016

Congress has passed a new intellectual property law to protect trade secrets. The law provides a new federal civil cause of action for trade secret misappropriation. The law also imposes a new whistleblower immunity notice requirement on employers.

On April 27, 2016, the U.S. House of Representatives voted 410 to 2 in favor of a bill to enact the Defend Trade Secrets Act of 2016 (DTSA). Congress presented the bill to the White House on April 29, 2016 for signature by President Barack Obama. The President is expected to sign the bill, based on prior support of the bill by his administration.

The DTSA is a bipartisan bill to amend a federal criminal statute known as the Economic Espionage Act of 1996 (EEA) to create the first federal private civil cause of action for theft or misappropriation of trade secrets. Although the EEA made trade secret theft a federal crime, some felt that the federal criminal statute did not go far enough to stem the rising tide of trade secret theft, economic espionage, and online hacking by cybercriminals.

Previously, trade secret misappropriation claims were generally brought under state laws. However, trade secret laws vary from state to state, which has made it difficult for U.S. companies to develop uniform policies. The DTSA is expected to assist U.S. companies by providing a harmonized federal standard for protection of trade secrets. The DTSA does not preempt state trade secret laws, however, so trade secret owners may still pursue remedies under applicable state laws.

The DTSA authorizes trade secret owners to file a civil action in federal court for trade secret misappropriation related to a product or service in interstate or foreign commerce. 

The DTSA provides remedies for theft or misappropriation of trade secrets that may include injunctive relief, damages (for actual loss plus any additional unjust enrichment not covered by an actual loss award, or, alternatively, a reasonable royalty), exemplary damages (for bad faith misappropriation, in an amount up to two times the amount of the damages award), an order for seizure of property, and attorney fees (for willful and malicious misappropriation or for pursuing a claim or opposing an injunction motion in bad faith). 

The statute of limitations for commencing a civil action under the DTSA is 3 years from the date that the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.

Employers should take note that the DTSA imposes a new federal whistleblower immunity notice obligation. The DTSA provides whistleblower immunity against criminal or civil liability for confidential disclosure of a trade secret to the government or in a court filing under seal. The DTSA whistleblower provisions require employers to provide notice of the immunity “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The DTSA broadly defines “employee” to include “any individual performing work as a contractor or consultant for an employer.” An employer who fails to comply with the notice requirement may forfeit exemplary damages or attorney fees in an action against an “employee” to whom the notice was not provided. The notice requirement applies to contracts and agreements that are “entered into or updated” after the date of enactment of the DTSA.

Employers should consult with counsel to ensure compliance with federal whistleblower immunity notice requirements, and may wish to review agreements and documents addressing trade secrets and confidentiality.

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