Bill Adolfsen and Ben Imhoff
On May 11, 2016, President Barack Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”). As an amendment to the Economic Espionage Act of 1996, the DTSA provides for a federal private cause of action for the misappropriation of trade secrets relating to products or services used in, or intended for use in, interstate or foreign commerce. An important component of any company’s intellectual property portfolio, a “trade secret” is generally defined to be any information that derives independent economic value from not being generally known or ascertainable by competitors. Such information generally includes not only scientific and technical information, but may also include various types of confidential business and marketing information.
Prior to the DTSA, trade secret claims were brought under state law with a majority of the states adopting some version of the Uniform Trade Secrets Act (“UTSA”). This was in contrast to the other primary forms of intellectual property such as patents, copyrights, and trademarks, which all confer federal rights that may be enforced in federal courts. Unless federal jurisdiction could be established through diversity of the parties or through supplemental jurisdiction with other federal claims, trade secret plaintiffs were previously limited to bringing trade secret misappropriation suits in state courts. While the DTSA will not preempt state trade secret claims, the DTSA provides many of the same benefits afforded under the UTSA and also provides additional benefits which may not have been available in state law claims.
Damages and Attorneys’ Fees
The DTSA includes provisions allowing prevailing trade secret plaintiffs to seek injunctions to recover damages and attorney fees. Under the DTSA, federal courts have the flexibility to issue injunctions to prevent any actual or threatened misappropriation so long as the injunction does not prevent a person from entering into an employment relationship or otherwise conflict with certain state laws.
The DTSA also allows federal courts to award damages for actual losses caused by the misappropriation, damages for unjust enrichment, damages based on a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret, and/or punitive/exemplary damages. Damages for unjust enrichment may only be awarded if such damages are not addressed in computing damages for actual loss. A reasonable royalty may only be awarded in lieu of damages for actual loss and/or unjust enrichment. The DTSA also gives federal judges the discretion to order punitive damages of no more than double the damage amount in a case where a trade secret is willfully and maliciously misappropriated.
Federal courts will have the discretion to award attorneys’ fees to prevailing parties, not only if the trade secret is misappropriated in bad faith, but also if a claim is made or a motion to terminate is made or opposed in bad faith. Under the DTSA, bad faith “may be established by circumstantial evidence.” This relaxes the standard found in many state laws and is significant because direct evidence of bad faith can often be difficult to obtain.
Whistleblower Immunity Provisions of DTSA
The DTSA provides criminal and civil immunity from liability under certain circumstances to individuals who (1) disclose a trade secret to a government official or an attorney for the sole purpose of reporting or investigating a suspected violation of law or (2) disclose a trade secret in a court document filed under seal. Individuals who file retaliation lawsuits for reporting a suspected violation of law may also disclose trade secrets to the employee’s attorney and in court documents filed under seal.
Importantly, to preserve their right to recover punitive damages and/or attorneys’ fees from any employee who may be found liable for trade secret misappropriation, the DTSA requires companies to provide employees with a “notice” of immunity. The “notice” may be provided in any contract or agreement with an employee that governs the use of a trade secret or other confidential information or may be satisfied if the employer provides a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law. The notice requirements, however, do not pertain to acts that are otherwise prohibited by law, such as the unlawful access of material by unauthorized means, for example, under the Computer Fraud and Abuse Act.
Ex Parte Seizures
Perhaps the most hotly debated provisions of the DTSA relate to ex parte seizures. The DTSA newly permits a plaintiff to request ex parte, seizure of another parties’ property by law enforcement to prevent the propagation of a companies’ trade secrets. An “ex parte” request is one in which notice does not need to be given to the party in possession of the property seeking to be seized. The seemingly dramatic remedy is a clear response to our digital and interconnected world, where a companies’ valuable trade secrets may be spread instantaneously with just a few clicks of a computer mouse or mobile phone. Although ex parte seizures are a potentially important new remedy to combat trade secret misappropriation, it remains to be seen how often such a remedy will be ordered. The DTSA states that federal courts may only issue orders providing for a seizure of property in “extraordinary circumstances” and after meeting other significant requirements, including posting a bond against improper or excessive seizure.
A Trade Secret Checklist
All companies wishing to avail themselves of the benefits of the DTSA, or any state trade secret law, must take active measures to protect their trade secrets. In addition to protecting their own trade secrets, a company’s IP policies should also focus on mitigating the risk that the company may be accused of trade secret misappropriation. The following checklist identifies some of the questions companies may consider or discuss with qualified counsel to ensure their IP policies are adequately protecting their trade secrets and mitigating the risk should the company be named in a trade secret misappropriation suit.
While the actions suggested by this checklist may seem challenging to implement, efforts now to adequately protect your company’s important trade secrets can prevent their misappropriation in the first place, avoiding costly litigation. Should your trade secrets be misappropriated, a well considered and executed trade secret policy can maximize your available recovery and remedies, including those newly provided in the Defend Trade Secrets Act.
Attorneys Joseph D. Kuborn and Aaron T. Olejniczak were selected for inclusion in Managing Intellectual Property's 2016 edition of the IP Stars list.
Andrus was selected as a ranked law firm in Chambers USA 2016, identifying our firm as one of the best firms in Wisconsin in the field of intellectual property law. In addition to the firm-wide ranking, Attorney Aaron Olejniczak was ranked as a notable professional.
Ben Imhoff and Emily Chilson attended the Annual Meeting for the International Trademark Association (INTA) in May 2016, which was the organization's largest Annual Meeting ever. INTA's Annual Meetings foster strong working relationships between IP attorneys throughout the world, while providing continuing education opportunities regarding global trademark protection.
Andrus Intellectual Property Law was proud to be a table sponsor for the Women Inspired to Lead event benefiting PEARLS for Teen Girls, Inc. The Women Inspired to Lead Event honors some of Milwaukee's most inspiring women. PEARLS is a leadership development program serving girls in middle school through high school in Milwaukee, Wisconsin.
Andrus Intellectual Property Law was proud to be a table sponsor for the Autism Gala benefiting the Autism Society of Southeastern Wisconsin (ASSEW). ASSEW is an education and advocacy group dedicated to improving the lives of those affected by autism.