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.

Pre-Judgment Attachment: Get It Before It Vanishes

Unfortunately, filing a lawsuit to collect a debt is often an encouragement to the debtor to move and conceal assets. This sometimes makes creditors hesitant to take early legal action. But, Virginia law has a solution: the pre-judgment attachment. Virginia law allows a creditor to bring the debtor's property into court custody at the outset of a lawsuit, thereby assuring that the property will be available to satisfy any judgment the court eventually grants.

Virtually any significant asset of a debtor can be subjected to attachment. Although real estate and business equipment are the most popular targets, a creditor can also attach bank accounts or even other monies owed to the debtor by a third party. One useful application of pre-judgment attachment occurs in construction cases, when a sub-contractor attaches payments to an out-of-state general contractor. An interesting case is the attachment of an elephant from a traveling circus; unfortunately, the creditor neglected to compute the cost of feeding the animal before taking this ill-advised action.

To secure a pre-judgment attachment the plaintiff files a sworn petition setting forth the cause of action and the grounds for the attachment. The justifications for attachment must fall within one or more of the categories allowed by Virginia Code Section 8.01-534. If the petition is approved by a judge, the creditor must post a bond of twice the amount of the claim. Upon posting of the bond a warrant will be issued ordering the sheriff to seize the property and bring it into the custody of the court. Generally, the debtor will request a hearing within twenty-one (21) days of the seizure at which time the court will determine whether the property will be released or remain in custody until the lawsuit is completed. Many attachments are dismissed at that hearing because of failure to comply with the technical requirements of Virginia attachment procedure.

Pre-judgment attachments do involve certain risks to the creditor. The bond is posted in order to compensate debtors for the improper seizure of their assets. Therefore, creditors should not use attachments for questionable claims. Nevertheless, the judicious utilization of this legal tool can be the difference between an empty judgment and a collected judgment.

Grounds for Attachment:

In summary form, it is sufficient grounds for attachment that the defendant:

* Is a nonresident corporation or individual, which has assets or debts owed to it in Virginia

* Is removing or about to remove out of the Commonwealth with intent to change domicile

* Intends to remove, or is removing, or has removed the specific property sued for or his assets or the proceeds of the sale of his property out of the Commonwealth so that the debtor will not have therein assets sufficient to satisfy the judgment

* Is converting, is about to convert or has converted his property into money, securities or debt with the intent to hinder, delay or defraud creditors

* Has assigned or disposed of or is about to assign or dispose of his assets with intent to hinder, delay or defraud creditors

* Has absconded or is about to abscond from the Commonwealth or has concealed himself to the injury of his creditors, or is a fugitive from justice.

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The above is not meant to replace legal counsel. To speak to one of the attorneys at Gross & Romanick, call 703-273-1400 or fill out one of our information request forms.