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Wednesday, September 28, 2016

Federal Defend Trade Secrets Act of 2016 Can Protect Your Business

On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”), which statute went into effect immediately. Virginia and most other states have existing laws against misappropriation of trade secrets, many adopting versions of the Uniform Trade Secrets Act (UTSA). These laws allow businesses to seek redress for misappropriation of trade secrets in a state court venue, which can be procedurally problematic when the offending party has no connection to the applicable state.  The DTSA creates a civil cause of action under federal law, which now allows businesses to prosecute trade secret cases in federal court against individuals and businesses located in other states.  In addition, the DTSA specifically covers trade secret misappropriation that occurs overseas. 

The DTSA provides various remedies for the aggrieved business, including recovery of actual damages, recover of damages for unjust enrichment, recovery of exemplary damages (two times proven actual damages), and recovery of attorney’s fees.  Injunctive relief is also available; or, when an injunction would be inequitable, a party can seek a reasonable royalty for the unauthorized use or disclosure of a trade secret.  In order for a business to recover exemplary damages or attorney’s fees, it will need to need to demonstrate that there was a willful and malicious appropriation of the trade secret.  It should be noted, however, that in order for a business to recover exemplary damages or attorney fees against a former employee, any employment or non-disclosure agreement entered into after May 11, 2016 must advise the employee of the whistleblower and immunity protections afforded by the DTSA.

Businesses in Virginia, large and small, may invoke the DTSA to file a claim in federal court rather than pursuing a claim in state court under existing state law. Unlike Virginia state courts, federal courts allow for summary judgment on depositions and are more likely to rule on a summary judgment basis.  Furthermore, in certain circumstances, the DTSA allows plaintiffs on an ex parte basis to instruct a federal marshal to seize property “necessary to prevent the propagation or dissemination of the trade secret.”  Because of this strong but harsh provision, it is expected that judges will be more likely to issue temporary restraining orders as an alternative remedy.

Although the DTSA does not pre-empt state law, it does protect employees in that it does not codify the “inevitable disclosure” doctrine available in some states, which doctrine allows employers to enjoin employees from working for competitors on the basis of the information the employee possesses.  Under the DTSA, an injunction against an ex-employee working for a competitor must be based on evidence of actual or threatened misappropriation of a trade secret.

Gross & Romanick, P.C. can help your business utilize the DTSA and similar state laws to protect against the misappropriation of trade secrets, both by preparing protective language to insert into agreements with employees, contractors and consultants, and by aggressively litigating theft claims against individuals or businesses that appropriate your trade secrets.