New Legislation Provides Better Protection of Trade Secrets

In May the Defend Trade Secrets Act (DTSA) took effect, expanding federal protection of trade secrets that are stolen or exposed by improper means. Trade secrets are defined as valuable, confidential information that provides a competitive advantage by not being generally known in the market. DTSA's passage was welcomed by U.S. companies, which value their trade secrets in the trillions of dollars.

Sens. Orrin Hatch (R-UT) and Chris Coons (D-DE) co-sponsored the legislation, which passed the Senate unanimously and the House by an overwhelming vote of 410-2. Boeing, Johnson & Johnson, 3M, Google, and General Electric were among the many companies that lobbied for DTSA's enactment. In signing the legislation, President Obama remarked that DTSA "allows us not only to go after folks who are stealing trade secrets through criminal actions, but also through civil actions, and hurt them where it counts in their pocketbook." Notably, DTSA is intended to supplement, not displace, existing state laws designed to protect trade secrets.

DTSA authorizes trade secret owners to bring suit in federal court regardless of where the parties reside or how much money is at issue if a trade secret is acquired or exposed by improper means. Victimized trade secret owners may recover their actual loss plus additional damages based on the benefit the other party gained by stealing the secret, as well as attorney's fees.

Additionally, DTSA provides a unique remedy allowing the court to seize property to prevent the dissemination of a trade secret when the accused is likely to destroy, move, hide, or otherwise make the material inaccessible. Under many state laws, a trade secret owner may recover stolen blueprints or demand the surrender of surreptitious photographs or recordings. But DTSA is unique because it allows a court to seize and hold property without prior notice to the accused party. In the event of a wrongful seizure, DTSA permits an injured party to recover lost profits, cost of materials, loss of good will, reasonable attorney's fee, and punitive damages arising from a seizure conducted in bad faith.

In addition to various civil remedies, DTSA increases the criminal fine from a maximum of $5 million to the greater of $5 million or three times the value of the stolen trade secret. It also establishes trade secret theft as a predicate offense supporting a claim under the Racketeer Influenced and Corrupt Organizations (RICO) law. A successful RICO claim could result in an award of up to triple damages and 20 years in prison.

Like preexisting state laws, DTSA obligates the owner of a trade secret to take "reasonable measures" intended to guard the confidentiality of the trade secret. "Reasonable measures" is not defined in the statute but includes items such as a locked room, security guards, confidentiality agreements, and the like.

Lastly, under DTSA, individuals who report trade secret theft to a government official, or who disclose a trade secret in a complaint filed under seal, may be protected from civil and criminal liability. DTSA imposes an obligation on employers to notify employees, including contractors and consultants, of the immunity. The employer may provide the required notice in an agreement with the employee or by cross-referencing a policy that explains the immunity. If an employer fails to give notice of the immunity, then the employer may not recover punitive damages or attorney's fees from the employee whistleblower in an action brought under DTSA.

Questions and concerns relative to trade secrets and their protection should be discussed with legal counsel experienced in trade secret law.

Darrell can be reached at 216-928-2896 or e-mail dclay@walterhav.com.