COMING TO AMERICA: PROTECTING YOUR STARTUP’S TRADE SECRETS IN THE US UNDER A GAME-CHANGING STATUTE
A Guest Post by SOSA Member, Eric Savage, Partner at Littler Mendelson PC
For companies operating in the US, or planning to do so, protection of confidential information is a major concern, and particularly for companies in the tech sphere. It is therefore good news that in May 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA). This statute provides, for the first time, a federal law allowing companies to pursue trade secret misappropriation claims and obtain full relief in federal court. Until now, trade secrets were protected only under state law; since different states have varying laws in this area, as well as different evidence and procedural rules, this created a complicated and often messy system for employers looking to protect their confidential information.
New Options for Trade Secret Owners
The DTSA opens a new route for trade secret owners which will give companies new options, both in terms of the substance of the law and the types of relief they can seek. Critically, the statute provides uniform definitions of “trade secrets” and “misappropriation” which will apply on a national basis. It also enables employers to file trade secret actions in federal court, with one set of federal procedural and evidentiary rules.
The law also provides new kinds of relief for employers.
It allows employers to seek injunctions to prevent use of misappropriated information and, if an injunction is impossible or if the court thinks an injunction would be unfair, allows the court to order the party which took the information to pay a royalty for however long the material should have remained confidential. In another major change, the DTSA allows the court to order seizure of misappropriated trade secret materials from a defendant, even without notice in extraordinary cases. These elements of relief are in addition to the opportunity for employers to recover money damages, punitive damages and counsel fees in certain situations. At the same time, the DTSA does not entirely replace state law, which may give employers additional weapons to use in fighting trade secret theft. However, it cannot be used to avoid the laws of some states, like California, which do not permit the enforcement of non-compete agreements. As a result, familiarity with state law will remain important for companies with confidentiality agreements.
At the same time, the new law requires the inclusion of certain language in the body of confidentiality agreements. In summary, the DTSA states that employees must be told in their agreements that they cannot be retaliated against if they use confidential information to report illegal activity by their employers (under certain very specific conditions). Not surprisingly, the actual language that the agreements must include is longer and more complicated than can be discussed here, but the inclusion of this material in the agreement is mandatory if the employer wants to be able to obtain all of the judicial relief that the DTSA offers.
The upshot is that any company operating in the US and which is using a form or template confidentiality agreement written before May 11, 2016 is probably giving up the chance to take advantage of all of the protections of the DTSA. As companies hire new employees, or promote employees to positions for which a confidentiality agreement is appropriate, it is important that the agreements be written with the DTSA in mind and in compliance with its provisions. Since the statute was written to help employers protect themselves and their secret information, it would be a shame not to take advantage of the opportunity.
Eric A. Savage is a partner in the New York City office of Littler Mendelson, PC, a national labor and employment law firm and a corporate member of SOSA. He can be reached at esavage@littler.com
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