New Federal Law To Provide Uniform Trade Secret Protection


By Philip J. Morin III and Veronica P. Hallett 

Intellectual property theft has been estimated to cost American businesses over $300 billion per year according to some sources.[1]  On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (the “DTSA” or “Act”), a new law creating a uniform federal cause of action for trade secret misappropriation.  The passage of the DTSA represents the most significant expansion of federal intellectual property law since the Lanham Act provided federal protection for trademarks 70 years ago.

PhilMorin.jpgHallet.jpgThe new law, which takes effect immediately, creates increased uniformity and predictability for employers seeking to prevent trade secret misappropriation by employees, and to recover losses in a civil action if their trade secrets are stolen.  In 1979, the Uniform Law Commission published the Uniform Trade Secrets Act (UTSA) in an effort to protect trade secrets for U.S. companies operating in multiple states.  The UTSA aimed to codify the various standards and remedies regarding misappropriation of trade secrets that had emerged in common law on a state-to-state basis.  Approximately 47 states have enacted trade secret statutes based on the language of UTSA.  However, ambiguities from state to state still remain. 

The DTSA will not preempt state statutes governing misappropriation, but may provide a preferable alternative route for relief in the federal courts that is uniform throughout the United States.  Claims under the Act must be commenced within 3 years after trade secret misappropriation is discovered or should have been discovered by the exercise of reasonable diligence. 

Several important highlights of the DTSA include:

  • Uniform Definitions.  The Act provides uniform definitions for “misappropriation,” “improper means,” and other troublesome terms that had been a source of disparity and conflicting interpretation among courts in different states. 
  • Increased Discovery Protections for Trade Secrets at Issue in Litigation.  The Act expressly prohibits the disclosure of a company’s trade secrets in litigation unless the owner is first permitted to file a submission under seal explaining why the information must be kept confidential.
  • Seizure of Evidence Provisions.  A business whose trade secrets have been stolen may apply ex parte (without notice) to the court for an order to have the trade secret material seized from the alleged misappropriator by law enforcement until an evidentiary hearing can be held.
  • Injunctive Relief.  A trade secret owner may apply for an injunction to stop actual or threatened misappropriation “on such terms as the court deems reasonable.”  An alleged misappropriator may be required to pay a royalty fee or take reasonable steps to protect the allegedly misappropriated information pending the outcome of the litigation.  However, a party may not be prevented from entering into any employment relationship by injunction.
  • Whistleblower and Anti-Retaliation Immunity Provisions.  The DTSA protects whistleblowers by offering immunity from criminal or civil prosecution to individuals who disclose trade secrets to federal, state, or local authorities, or to an attorney, for the purpose of reporting or investigating a suspected violation of the law.  The DTSA’s anti-retaliation provision protects individuals who are retaliated against for reporting a suspected violation by permitting them to use and disclose the trade secret information at issue in the court proceeding.  However, any filing of trade secret information with the court must be made under seal.
  • Notice Requirements.  Employers must give notice of the immunity provisions of the Act to employees in any contract or agreement that governs the use and disclosure of trade secret or other confidential information.  If an employer fails to comply with the notice provisions, it will not be awarded exemplary or punitive damages in any action under the DTSA against an employee who misappropriates trade secrets.

The notice requirements of the law apply only to contracts made or altered after the DTSA becomes effective, so it is not necessary for employers to replace existing contracts with new ones.  However, even if an existing contract is not replaced or modified, it is advisable to put existing employees on notice of these new immunities.  

It should also be noted that the DTSA’s definition of “employee” is expansive and includes independent contractors and consultants.  This suggests that employers should examine not only the language of their employee policies and contracts, but independent contractor and consulting agreements as well.

The experienced labor and employment attorneys at Florio Perrucci Steinhardt & Fader, LLC, have assisted public and private employers of all sizes to implement appropriate policies and contract language to safeguard trade secrets or other confidential information and represent clients in litigation involving trade secret claims. 

Please contact Phil Morin, Veronica Hallett, or your FPSF relationship attorney to discuss your company’s particular needs today. 


[1] See 2013 Report of the Intellectual Property Commission available at http://www.ipcommission.org/report/ip_commission_report_052213.pdf.  

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