The New Defend Trade Secrets Act: Six Steps Businesses Can Take Now to Protect Trade Secrets
The Defend Trade Secrets Act (DTSA) is a new federal law passed in 2016. It is unique in that it increases protections for employers as well as employees or subcontractors that handle trade secrets. It provides a cause of action under federal law for the owners of misappropriated trade secrets and powerful new weapons to protect trade secrets from unauthorized dissemination. This law also creates new protections to employees and subcontractors who use trade secrets exclusively to report violations of the law (i.e., whistleblowers). The law went into effect in May, and has already played a prominent role in trade secret litigation. To take full advantage of the DTSA’s protective tools, businesses must take steps on the front end to identify, quantify, and protect their trade secrets.
THE DTSA GIVES BUSINESSES SIGNIFICANT NEW TOOLSThe DTSA preserves the right of business to seek injunctive relief to protect trade secrets, but adds the unique ability to apply to court for an ex parte seizure of trade secrets when necessary to prevent dissemination. This is, of course, extraordinary relief and businesses must meet a high threshold to take advantage of it. This option addresses head-on, however, the unique damage that can occur when trade secrets are removed even briefly from proprietary control. The DTSA also allows businesses to obtain damages for actual loss and unjust enrichment, and - when the toothpaste is too far out of the tube - damages in the form of a reasonable royalty.
THE DTSA GIVES WHISTLEBLOWERS NEW PROTECTIONSThe DTSA allows employees and subcontractors to avoid criminal and civil liability for the disclosure of a trade secret to a governmental official or to an attorney if the disclosure is made in confidence and solely for the purpose of reporting, investigating a suspected violation of law, or for the use in an anti-retaliation lawsuit. Additionally, businesses cannot take advantage of relief provided by the DTSA unless those businesses have alerted employees and subcontractors to their whistleblower rights in any contracts or non-disclosure agreements entered into or updated after the DTSA's effective date of May 1, 2016.
THE DTSA REWARDS THOSE WHO EXERCISE DILIGENCEThe DTSA utilizes the existing definition of a trade secret from 18 U.S.C. 1839, which provides:
[T]he term "trade secret" means 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 whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if--
(A) The owner thereof 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.
Thus a business that has failed to identify trade secrets as such internally, has failed to take reasonable precautions to protect them, or is unable to quantify their value, will have a difficult time taking advantage of the most beneficial remedies under the DTSA. Any business that believes it can benefit from trade secret protection should start with the following threshold precautions:
1) Inventory the information within the organization that has value dependent upon it remaining "secret."
2) Inventory who has access to that information.
3) Ensure that anyone with access to trade secrets is able to identify information considered a trade secret, and fully understands their duty of non-disclosure.
4) Review procedures for keeping trade secrets safe, and detecting any misappropriation.
5) Review whether non-disclosure agreements with key employees and subcontractors are advisable, and if they are, ensure that such agreements comply with the DTSA.
6) To the extent possible, quantify the value of trade secrets, both in terms of their fair market value and in terms of the damage that could be done by their disclosure. If a business were to ever be in the unfortunate position of needing to utilize the equitable relief available under the DTSA, an ability to establish potential damages in short order would be key.