President Signs Federal Trade Secrets Act

Randi Klein Hyatt
Randi Klein Hyatt
05/19/2016

This past week, President Obama signed into law the Defend Trade Secrets Act of 2016, which can be found here.  The Act creates a federal cause of action for trade secret misappropriation, and complements the many state laws (typically based on the Uniform Trade Secrets Act) already in effect.

The Act provides a claimant a number of strong tools. Perhaps most importantly, it allows for the ex parte seizure of the claimed trade secret upon affidavit or verified complaint.  Much like a temporary restraining order, an applicant must still show immediate and irreparable injury, balance of harm, and likelihood of success on the merits, but the Act allows for seizure by law enforcement prior to notifying the defendant.  The Court has discretion to appoint a special master to assist with the seizure, and also can require the applicant to provide security for any loss.  Unless otherwise agreed, the Court must hold a hearing within seven days of the seizure.

Once a misappropriation has been proved, the Court can award actual damages or, in lieu of any actual damages, damages measured by the amount of a reasonable royalty for the use of the trade secret.  If the trade secret was willfully and maliciously misappropriated, the Court can order exemplary damages of not more than two times the amount of actual damages, plus attorneys’ fees.  Attorneys’ fees can also be awarded to a defendant if the claim for misappropriation was brought in bad faith.

Finally, the Act contains whistleblower protections for employees, which includes contractors and consultants.  An individual will not be liable for misappropriation for a disclosure made in confidence to a government official or attorney solely for the purpose of reporting a suspected violation of law.  Any such disclosure can be made in a legal filing under seal.  Employers have to provide notice of this immunity to employees in any employment contract governing the trade secrets, or cross reference to the policy, in order for the employer to recover attorneys’ fees or exemplary damages in any subsequent lawsuit.

The new Act provides powerful tools for employers with valuable trade secrets.  Employers should make sure their employment contracts provide the necessary disclosures so that they can take full advantage of the new law.

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