On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016. The Act allows, for the first time, businesses the right to file federal claims against those who misappropriate trade secrets. Prior to the Act, a business had to file claims in state court, unless the information at issue was subject to a copyright, patent, or trademark. Businesses may now sue in federal court for money damages and injunctive relief.
Per the Act, a “trade secret” encompasses a wide range of confidential business information. A trade secret may include product designs and manufacturing techniques, and strategic information, such as client lists and pricing strategies. In short, the Act generally protects information that derives its value from being secret.
The Act also provides a civil seizure remedy in extraordinary circumstances. If the circumstances warrant, a business can obtain an emergency federal court order allowing for the seizure of property necessary to prevent the dissemination of a business’ trade secrets.
In addition, the Act protects whistleblowers who disclose alleged trade secrets in confidence to the government. The Act provides civil and criminal immunity for the disclosure of a trade secret that is made “in confidence to a Federal, State, or local government official, directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law.”
The Act requires employers to provide a notice of this immunity to any employee in any contract governing the use of trade secrets or other confidential information. Thus, some companies will likely need to revise their employment agreements and confidentiality agreements to comply with this notice requirement.
Under the Act, trade secrets do not have to be registered with the government to enjoy full legal protection, like a patent. However, a business seeking to take advantage of the Act does need to take steps to protect its trade secrets, or the Act provides it no protection. If a trade secret does get released, businesses should be prepared to act quickly, if the business desires to pursue claims under the Act.
Businesses might consider the following steps to help protect their trade secrets and maximize the protections now afforded by the Defend Trade Secrets Act:
1. Identify and protect your secrets. Most important is the identification and then the protection of business trade secrets. Employees should be trained on confidentiality, and trade secrets should be disclosed to only those with a need to know. Staff departures should be managed, and businesses may want to consider non-disclosure agreements with their employees and key business partners.
2. Protect against claims brought under the Act. Hiring a competitor’s former employee could expose a business to litigation under the Act. The former employer could claim trade secrets improperly passed from the employee to the business. Processes may be necessary to reduce the risk of litigation in these situations.
Brian A. Walker represents businesses and individuals in commercial, business, employment, and real estate related litigation and transactions from the Wenatchee office of Ogden Murphy Wallace PLLC.