Defend Trade Secrets Act of 2016: A Basic Primer

Defend Trade Secrets Act…

What do Coca-Cola Classic®, Big Mac® sauce, and KFC Original Recipe® chicken all have in common? Leaving aside obvious questions about nutritional value, the answer is that each product derives economic value from secret formulas that qualify as industry “trade secrets.” In essence, a trade secret is any information that derives value from not being generally known and for which reasonable efforts are undertaken to maintain its secrecy.

Individuals and businesses whose trade secrets have been misappropriated (i.e., stolen) have long been entitled to bring claims in state court for violation of state trade secrets laws. (Forty states, including Michigan, adhere to some version of the Uniform Trade Secrets Act, a model law setting forth civil remedies for the misappropriation of trade secrets.)

Signed into law on May 11, 2016, the Defend Trade Secrets Act of 2016 (“DTSA”) significantly expands trade secrets protections beyond the traditional confines of state law. Most notably, the DTSA creates a new federal cause of action for misappropriation of trade secrets related to products or services used in interstate or foreign commerce. Accordingly, an individual or business whose trade secrets have been misappropriated can now sue in federal court for damages and injunctive relief.

What follows is a summary of the DTSA’s more notable provisions:

  • The DTSA’s definition of “trade secret” is broader than what is provided under state laws; thus, the DTSA could be interpreted to encompass categories of information that may not have qualified as “trade secrets” under state law.
  • The DTSA protects whistleblowers from criminal and civil liability for disclosing a trade secret so long as the disclosure is made in confidence to a government official or attorney for purpose of reporting a violation of law. Additionally, employers must now provide employees notice of this new immunity provision “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” An employer that fails to provide written notice of this provision is barred from recovering exemplary damages and attorney fees in an action brought against an employee under the DTSA.
  • The DTSA creates a new “ex parte seizure” remedy, authorizing federal courts to issue an order for federal officers to immediately seize “property necessary to prevent the propagation or dissemination” of trade secrets without notice to the defendant. However, such relief is available only upon the showing of “extraordinary circumstances,” and the party seeking it must make several showings, including proving that an injunction or restraining order would be inadequate “because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order.”

Finally, it is important to note that the DTSA does not pre-empt state trade secrets laws; in other words, owners of trade secrets remain free to assert trade secrets claims in state court pursuant to applicable state statutes.

Because the DTSA is so new, it remains to be seen how the courts will interpret and apply this new law. What is certain, however, is that the federal courts will soon be faced with the task of interpreting the DTSA to determine its “real world” application.

Questions? Call us at 248.477.6300.

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