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Friday, May 6, 2016

Keeping Secrets About to Get Easier



By: Thomas Eden

The Defend Trade Secrets Act (“DTSA”) passed by both houses of Congress on April 29 and currently sits on the President’s desk. By all accounts he will sign and the Act will become effective upon his signature and will apply to any misappropriation of trade secrets that occurs on or after the date it is signed. The DTSA is the most sweeping change to the nation’s intellectual property laws in a generation.

With this new law Companies, and other institutions, that are victims of trade-secret theft will have a federal alternative to bring a civil action anywhere in the nation to enjoin violations of trade-secret theft.

The DTSA does not preempt current state trade secrets laws. State courts will remain an option for victims of trade secret theft. One distinction is that the DTSA expressly rejects the “inevitable disclosure” doctrine recognized by many states and precludes a court from enjoining a person from entering into an employment relationship. Rather, the Act requires evidence of threatened misappropriation rather than merely information that the person knows.

The most significant federal addition to trade secret protection is its authorization of ex parte seizure orders (without pre-hearing notice to the defendant) by federal court judges. Under the DTSA, a person may have a laptop, server, storage device, papers, or other property forcibly taken into custody without advance notice. Such an order must be the “narrowest” necessary to achieve the purpose of the order, but still makes the DTSA a potent weapon for employers. Fairly substantial proof will be required to obtain this extraordinary interim remedy.

Attorneys’ fees and exemplary damages are not recoverable under the DTSA unless the employer has provided its employee, consultant, or contractor with notice of certain immunity from criminal and civil prosecution granted by the DTSA to persons who disclose trade secrets by the means provided by the DTSA. This would apply to government agencies and production under seal in court proceedings.

Common Sense Counsel: this is the most significant soon to be available weapon to combat employee trade secret theft. Be prepared to quickly take these steps: 1) all non-disclosure agreements, confidentiality agreements, employment agreements, consulting agreements, and independent contractor agreements should be redrafted to include new DTSA non-disclosure provisions to include the required notice; 2) documents containing trade secrets should be labeled as confidential, their distribution should be limited, they should be maintained in secure areas, and individuals who are privy to such secrets should be trained on the nature of that information and how to safeguard it; 3) access to computer files containing such information should be restricted, 4) those with access should be trained on the files’ confidentiality; and 5) because trade secrets litigation often involves violations of non-competition or non-solicitation agreements, be prepared to bring  such claims in federal court in tandem with the alleged DTSA violation.

Tommy Eden is a partner working out of the Constangy, Brooks, Smith & Prophete, LLP offices in Opelika, AL and West Point, GA and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at teden@constangy.com or 334-246-2901 with blog at www.alabamaatwork.com with link to legislation.

UPDATE: Bill now signed into law. Read about it here.