In coming post, we will be covering in detail sweeping changes to trade secret law resulting from the recent enactment of the Defend Trade Secrets Act. This statute was signed into law on May 12, 2016, by President Obama with overwhelming bipartisan support (410 to 2 in the U.S. House of Representatives and by a vote of 87 to 0 in the Senate).
The Act creates a federal cause of action for trade secret misappropriation. Before its passage, such claims were governed by state law. In this regard, 48 of the 50 states – including Michigan – adopted and applied some version of the Uniform Trade Secrets Act.
Overview of the Federal Trade Secret Act.
So what does the Act do and why is it so important? Here are a few of the high-points and specific features:
- Trade secret misappropriation is a federal offense. Under the Act, a claimant can bring a misappropriation claim in federal court if that trade secret is “related to a product or service used in, or intended for use in, interstate or foreign commerce.” In other words, to bring a federal trade secret lawsuit there must be an interstate commerce component.
- State Treatment of Trade Secret Law. The Act does not preempt similar state trade secret law. This means that a trade secret plaintiff can file claims under federal and state law. This provision will require careful consideration from trade secret plaintiffs because federal and state law may allow for different remedies and rights.
- Federal versus State Trade Secrets. The Act essentially leaves intact the definition for “trade secret” that is used by state law. Also, threatened or actual misappropriation is prohibited, meaning a plaintiff does not have to wait for actual harm before seeking relief in court.
- Immediate seizure of misappropriated trade secrets. The Act allows for immediate seizure of stolen trade secrets before a full court hearing. To do this, a plaintiff must make a showing of “extraordinary circumstances” to prevent the use or dissemination of the stolen trade secret. The seized materials remain in court custody pending a court determination after a hearing. The order may only be entered if (i) there is no other adequate equitable relief; (ii) the trade secret has been misappropriated; and (iii) the trade secret is in danger of destruction/removal. Conversely, the Act requires a plaintiff obtaining the order to provide appropriate security, as determined by the court, for the payment of damages that any person may be entitled to recover as a result of a wrongful or excessive seizure or wrongful or excessive attempted seizure under this paragraph.
- Employment Agreement and Whistleblower Protections. The Act provides immunity to whistleblowers who disclose a trade secret to (i) government officials for the purpose of reporting violations of law or (ii) an attorney or court in connection with an antiretaliation lawsuit relating to the individual’s whistleblower activities. The Act requires employers to provide notice of such immunity “in any contract or agreement with an employee that governs the use of a trade secret or confidential information.” Perhaps most important for employers, to be able to take advantage of the attorneys’ fees and exemplary damage provisions available under the Act, any confidentiality agreement with an employee against whom the company sues under the statute must provide notice of the whistleblower protections or make reference to a whistleblower policy that provides such notice.
- Remedies. Potential remedies include: (i) injunctive relief; (ii) seizure of stolen trade secrets; (ii) damages for actual loss or amount of unjust enrichment; (iii) royalty payments in lieu of other damage assessments; (iv) double damages if willful and malicious misappropriation; and (v) fees.
With this background in place, in the next post, we will be covering specific recommendations for companies to take in response to the Act. In particular we will be looking at the seizure provision and the potential for anti-competitive seizures and procedural safeguards.
For more information about trade secrets under federal or Michigan law, contact attorney Jason Shinn. Since 2001, he has represented clients in trade secret lawsuits, as well as drafting trade secret protections and protocols.