A New Federal Law, the DTSA, Provides Employers With a Powerful Tool for Trade Secret Litigation

Think trade secrets violations, and prominent cases involving big companies may come to mind. There was one where a worker for the chemical company DuPont provided a competitor in South Korea with information regarding the production of Kevlar vests, and another where research scientists for GlaxoSmithKline in Philadelphia passed on confidential data about drugs to treat cancer to associates who planned to sell the data in China. But big corporations aren’t the only vulnerable businesses. Since virtually any non-public information can be kept as a trade secret, I would in fact argue that almost every company owns trade secrets.

A law that President Obama signed in May has implications for all such businesses, be they big or small. Titled the Defend Trade Secrets Act (DTSA) and intended to supplement laws already existing in 48 states, it deals with the litigation of trade secret theft and gives businesses a tool to go after employees who misappropriate information in interstate or international dealings. It also supplements an existing federal law that makes the theft of intellectual property a crime.

When it comes to trade secrets, legally protectable information runs the gamut from formulas and patterns to methods, devices and processes. It can include customer lists, cost and pricing information, recipes and designs. Basically, almost any information qualifies that will give a company an edge over a competitor simply because that competitor isn’t privy to the data.

The DTSA, which was passed almost unanimously, covers remedies such as recovery of attorneys’ fees and damages for actual loss and for unjust enrichment. Another DTSA remedy, “ex parte seizure,” provides a powerful tool for plaintiffs alleging trade secret misappropriation. In order to prevent “the propagation or dissemination of the trade secret” they own, they can ask the courts to order the seizure of property without prior notice to the opposing party. Ex party relief may only apply in rare situations, but it will be useful in cases where there is a flight risk or where an injunction would not suffice to prevent severe harm after the massive theft of information.

The DTSA does grant immunity protection for whistleblowers who disclose trade secrets to their attorneys or to government officials — and it requires that employers notify their employees, contractors and consultants of this immunity in contracts that address trade secrets. This last provision applies to all amendments of old contracts and to new contracts that were signed after May 12, 2016. Failure to provide the notification would make an employer ineligible to recover damages or attorneys’ fees in a trade secret lawsuit, which is why business owners are encouraged to revisit their nondisclosure provisions.

By Kevin J. Moore

Kevin Moore, Founder of Kevin J. Moore & Associates, is focused in the areas of estate planning, trusts and probate services with additional expertise in both domestic and international business transactions and tax planning and tax controversy representation for individuals and companies.