One of the most valuable assets a business has may be its trade secrets, but, until last year, this form of intellectual property was protected only by a patchwork of state laws.
Effective May 11, 2016, the federal Defend Trade Secrets Act (DTSA) created a private right of action for misappropriation of trade secrets.
The DTSA doesn’t replace state laws, but supplements them. Trade secret owners can now pursue misappropriation claims in federal court and, in some circumstances, may obtain a federal court order directing federal marshals to seize the misappropriated trade secrets.
Under the DTSA, the definition of “trade secret” is similar to that found in most state laws.
In order for information to be protectable, the owner of that information must have taken reasonable measures to keep the information secret, and the information must derive “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.”
The DTSA contains provisions expressly authorizing injunctions, actual damages, and, in the case of willful and malicious misappropriation, exemplary damages in an amount up to twice the actual damages awarded.
Attorneys’ fees may be awarded to the prevailing party where a misappropriation claim is made in bad faith, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated.
The DTSA also provides civil and criminal immunity to those disclosing trade secrets for the purpose of reporting or investigating a suspected violation of law, provided the disclosure is made in confidence to an attorney or a government official.
Employers must, according to the law, ensure that all agreements with employees and independent contractors that have clauses protecting confidential information include a whistleblower protection notice.
Failure to provide the notice could cause the employer to lose its right to exemplary damages and attorneys’ fees.
The law provides that, for purposes of the statute of limitations, a continuing misappropriation constitutes a single claim of misappropriation. As a result, there has been some confusion over how the law applies when the misappropriation began before DTSA’s effective date, but continued afterward.
At least three courts, one in Florida, one in New York, and one in California, have now ruled that in cases of misappropriation that began before the DTSA’s effective date, the plaintiff is entitled to at least partially recover under the DTSA, so long as at least one “act” that violates the DTSA occurs after the effective date.
If, for example, Company A wrongfully obtained Company B’s trade secret formula before the DTSA’s effective date, Company A could still be liable for violating the DTSA if it used or disclosed that information after May 11, 2016.
At least one case (also in California) has held, however, that merely re-disclosing the confidential information after the effective date of DTSA is insufficient. The situation in that case involved a company that had acquired and disclosed the confidential information before the DTSA took effect.
The court dismissed the claim, stating that the trade secret owner had “not cited any authority suggesting that the DTSA allows a misappropriation claim to be asserted based on the continued use of information that was disclosed prior to the effective date of the statute. Simply alleging that the same information was disclosed ‘again’ is not sufficient to avoid this result as ‘disclosure,’ by definition, implies that the information was previously secret.”
Please feel free to contact us if you have any questions about trade secrets or if you need help updating agreements with your employees and independent contractors.
