My colleagues Michael Kelsheimer (author of the monthly Employer Handbook blog), intellectual property lawyer David Lisch and I put together a client alert on the new Federal Defend Trade Secrets Act of 2016 law. You can download the DTSA 2016 Client Alert or keep reading.

 

President Obama is expected to sign the Defend Trade Secrets Act of 2016 (DTSA), which was passed by Congress at the end of April 2016. This law could impact your property protection, litigation and employment law strategies.

Background on the Law

The DTSA allows parties to bring lawsuits in federal court when another party steals or misappropriates trade secrets. Before the DTSA, most litigants were forced to sue in state court under the Uniform Trade Secrets Act (UTSA), which was approved by 48 of the 50 states including Texas, unless there was another unrelated avenue to appear in federal court. The DTSA is similar to the existing state trade secret laws, but with a few important distinctions discussed below.

What is a trade secret?

Trade secrets touch almost every business in America because they are broadly defined and implicated almost every time you hire or terminate an employee. The DTSA, like the UTSA, defines a trade secret as:

All forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and regardless of whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:

(a) the owner has taken reasonable measures to keep such information secret; and

(b) the information derives 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.

What intellectual property protections do I need?

Trade secrets can protect more of your business assets than copyrights, trademarks or patents.  The latter are limited in availability and the protections granted. A trade secret does not have to rise to the level of a patentable invention and you do not have to disclose it to the world in order to protect it, as you would a trademark, copyright or patent. Textbook examples of trade secrets are the allegedly secret formula to Coca-Cola and Kentucky Fried Chicken’s secret recipe.

Because trade secrets are secrets, they must be kept secret. Restricting employee disclosure of trade secrets is only helpful if the secret is not leaked or shown to prospective customers. The key is to implement company-wide measures to keep the secrets, secret. Counsel can help review what company assets or information may be trade secrets (as opposed to utilizing other intellectual property protections) and whether you have the right processes in place to prevent disclosure.

Ask yourself, how hard is it for an employee to walk out with your information? How damaging would that be?

How does the law impact my litigation strategy?

When signed into law, the DTSA will not preempt state law. If you believe your trade secrets have been misappropriated, you will have the option to sue in federal court under the new law or the existing UTSA under state law.

So, why use the DTSA instead of the UTSA? The DTSA allows a federal court to seize property and prohibit the dissemination of the trade secret “ex parte” (without advance notice to the former employee) in “extraordinary circumstances”.

Obtaining a seizure will not be easy. You must show that the more traditional preliminary injunction, currently available under the UTSA, will not provide adequate protections. To prevent abuses, you are not allowed to make copies of any seized property. Finally, all ex parte orders must include specific instructions regarding when the seizure can take place and whether force may be used to access locked areas.

This remedy is in addition to whatever damages you recover. Under the DTSA, you can recover actual damages, restitution, injunctive relief, exemplary relief (up to two times the award of actual damages) and attorney’s fees.

Courts will not, however, enter an injunction under the DTSA if doing so would keep the defendant, such as a former employee, from entering into a new employment relationship. The DTSA would allow for conditions to be put on that employment, but only if you can show threatened misappropriation and not just argue that misappropriation is likely because of information the defendant knows. The DTSA will not, in other words, support an “inevitable disclosure” claim.

The DTSA also bolsters possible criminal penalties for stealing trade secrets by increasing the penalties for a criminal violation from $5 million to the greater of $5 million or three times the value of the stolen trade secrets, including the costs of reproducing the trade secrets.

Using the DTSA may also clarify what law is applicable. While most states have adopted the UTSA, there are still minor variances. If you invoke the DTSA, you will know exactly what law applies regardless of where the parties are located within the United States.

As an employer, do I need to take action?

The DTSA offers some unique benefits for employers. If you have employees throughout the country, the DTSA will allow a uniform mechanism to protect your secrets. If you need to seize property from a former employee, the DTSA is probably your best option.

If these provisions are valuable, update your employment contracts to include the immunity notice required under the DTSA. This will allow you to recover punitive damages and attorney’s fees. Without the notice “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information,” these added benefits are unavailable.

Of course, the immunity language might give some employers pause, as it warns employees that they are protected in providing trade secret and other confidential information to the government for the purpose of reporting a company’s violation of the law. For employers in good standing, this should not be a problem.

The Bottom Line

The DTSA presents an interesting weapon to protect your trade secrets. If you take action in your employment agreements and protect your trade secrets now, you may be able to file lawsuits in federal court. There are a number of factors that go into deciding whether to pursue a claim in state or federal court, but, with the passage of the DTSA, companies seeking to protect trade secrets will have that option and additional remedies available to them.

Rocky Mountain National Park

Because of an extended working vacation away from Houston’s heat in Colorado, I’ve been away from the blog.  Like my kids gearing up to go back to school, I’m getting back to the normal work mode back in the office while recovering from a separated shoulder from a mountain biking incident (riding across on overpass in Houston is apparently different than actual mountain biking).  As a warm-up, here are a few quick links to interesting stories from the last couple of weeks.

Another Adwords Trademark Dismissal

From Professor Goldman’s Technology and Marketing Law Blog — another unsuccessful keyword advertising lawsuit.  The plaintiff was a collection agency and the defendant was a law firm that bid on the plaintiff’s name that triggered the following ad:

a link titled “Stop Collection Calls—Is Allied Interstate Calling You?” Below the link are two lines of text, the first listing Defendants’ URL, www.creditlaw.com, and the second bearing the slogan “Stop the calls for free!”

Under most circumstances, I would advise clients to avoid using the competitor’s name in the ad copy.  But, this is one of those easy exceptions.  It is clear the law firm is not trying to confuse consumers into thinking the law firm is the same as the collection agency.  It is a pretty easy decision, but a good reminder of how trademark law plays into search engine advertising.

An Eraser Button for Minors on Social Media

Charlie bags his first 14’er — sort of because it was Mt. Evans and we drove most of the way.

We previously mentioned an eraser button for minors on social media.  It appears the California Legislature is also back from vacation which, according to Edwards Wildman’s Digilaw Blog, means the law may be a reality soon.

Hi-Jacked Sites

One of the most difficult things to do is help clients deal with IP theft from pirates outside of the U.S.  Seyfarth Shaw’s Trade Secret Blog provides some tips on how to deal with these issues–assuming you have enough clout to get your state attorney general involved.

Cascade Falls

Don’t let your independent contractor use your email.

Evan Brown’s Internet Cases blog discusses a recent Texas opinion regarding the dangers of letting an independent contractor use the company email.  An independent contractor cannot usually bind a company to an agreement because they don’t usually have the authority.  The company, however, can clothe the independent contractor with the indicia of authority and lead the other party to believe they are dealing with the right person.  One way to do that — have the independent contractor send emails from the company account.

Understanding the law and the government’s 

Sunrise in Grand County, Colorado

To get a good baseline understanding of the law underlying the government’s ability to (store, monitor, read, index, search – you choose the verb) / (phone records/meta data/emails/cell location information — you choose the object of the verb), NPR’s Morning Edition has a good story explaining the 1978 Supreme Court decision that may say all of this is perfectly legal.