corpcounsel.com | May 17, 2016
Defend Trade Secrets Act: Planning
Ahead and Strategic Choices
From the Experts
Aaron H. Marks and
Drew B. Hollander
Now that President Obama
has signed the Defend Trade
Secrets Act (DTSA) into law,
in-house attorneys and outside counsel are pondering its
implications for employment
contracts, non-disclosure agreements with business partners
and litigation paths for protecting critical company trade
secrets. The DTSA affords clarity and consistency to the lone
area of intellectual property law
that until now has been governed primarily by a patchwork
of states’ laws. The DTSA grants
federal question jurisdiction for
trade secrets cases, provides
uniform definitions of a “trade
secret” and “misappropriation”
and sets out clear and meaningful remedies, including expedited injunctive relief and seizure.
The DTSA undoubtedly provides trade secret owners with
a new layer of protections in a
world where trade secrets have
become a company’s lifeblood,
and yet hacking and corporate
espionage have become commonplace.
Protecting a company’s interests always starts with controlling the circumstances under
which trade secrets are shared,
and managing the company’s
relationships with its employees
as well as with vendors, suppliers and customers. In light
of the DTSA, legal and human
resources departments will have
to revisit the contracts between
the company and its employees. For example, the DTSA has
a section providing immunity
from claims of trade secret misappropriation to whistleblower
employees who disclose their
employer’s trade secrets or confidential information to state or
federal agencies for the purpose
of reporting or investigating a
suspected violation of law.
May 17, 2016
Significantly, that section also
incorporates a requirement
that an employer “shall provide notice of the immunity”
created by the DTSA “in any
contract or agreement with an
employee that governs the use
of a trade secret or other confidential information.” Failure to
include this notice will strip the
company of certain remedies
(such as enhanced damages
and attorney fees) available in
an action against an employee brought under the Act. This
requirement applies to employment contracts as well as nondisclosure agreements entered
into or modified after the law
took effect.
The DTSA should, in theory, minimize the negotiations
involved with drafting nondisclosure agreements by providing
uniform definitions for protectable trade secrets and the acts
that constitute misappropriation,
incorporating a clear statute
of limitations (three years) and
clarifying the key remedies available at law to an aggrieved party.
Starting with these baselines,
parties can focus on customizing
their nondisclosure agreements
to meet the specific circumstances and needs involved with a
protected release or exchange of
information.
The DTSA’s enactment will also
present companies with calculable choices when going to court
is unavoidable. Trade secret protections originally arose out of
state law, requiring navigation
of differing statutes and bodies
of judicial decisions. The Uniform Trade Secrets Act (UTSA)
marked the first effort to provide
a consistent and unified system
for trade secret protection. However, the UTSA is a model statute.
Although nearly all states have
enacted some form of the UTSA
(New York being a key exception), there are still significant
differences in the definition and
scope of trade secret protection
among the states. These inconsistencies are compounded by
the fact that each state’s courts
have developed their own interpretations of their version of the
UTSA. As a consequence of the
state-based regime, trade secret
owners were often required to
expend significant resources on
precomplaint investigation for
purposes of determining the
proper and most advantageous
forum for bringing suit.
For the first time, trade secret
owners will have a well-defined
and reliable venue for bringing lawsuits. A clear path to
federal court will allow trade
secret owners to move quickly and predictably to prevent
the dissemination and use of
their proprietary information
by unauthorized persons. The
DTSA’s key provision providing
federal question jurisdiction will
bring an end to the somewhat
manufactured practice of pleading claims under the Computer
Fraud and Abuse Act (CFAA) to
get into federal court in trade
secret cases.
Although the CFAA is primarily a criminal statute, it provides
a private civil cause of action
for damages arising from the
unauthorized access and use
of information obtained from
a “protected” computer. However, there are a variety of
requirements in order to bring
a claim under the CFAA, and it
is often not applicable to common instances of trade secret
misappropriation. Additionally,
the damages available under
the CFAA are limited, failing
to account for the value of the
misappropriated trade secrets.
Trade secret plaintiffs have also
brought cases in federal courts
in instances where diversity
jurisdiction is present, but those
cases often include complicated
disputes over the choice of state
laws to be applied.
While the DTSA will provide litigants with consistent standards
for trade secret cases, federal
court will not be the exclusive
domain for such lawsuits. The
DTSA explicitly provides that it
does not override or “preempt”
state trade secret law. This
means that trade secret owners will continue to have the
option to litigate in state court,
May 17, 2016
and it is likely that many will
prefer to file certain cases there.
For example, the DTSA appears
to reject the “inevitable disclosure” doctrine, which is key in
the employment context. The
inevitable disclosure doctrine
provides for a plaintiff company
to prove that an employee who
had access to a former employer’s proprietary trade secrets will
invariably make use of the information, consciously or subconsciously, in the course of their
subsequent employment. The
doctrine, although only favored
in certain states, can allow a
court to impose a preliminary
injunction prohibiting a departing employee from taking a
new, competitive job based on a
prediction of future trade secret
misappropriation.
Under the DTSA, injunctive
relief is not available based
merely on “the information
the person knows,” meaning
employers will be unsuccessful
in federal court in attempting
to prevent a former employee
from disclosing or using trade
secrets in subsequent employment in the absence of an actual
improper physical taking. Conversely, a trade secret owner
who experiences a cross-border
theft will unquestionably be
better off utilizing the broad
discovery powers attendant
to being in federal court and
relying on the strong remedies
afforded by the DTSA. The pros
and cons of federal versus state
court will have to be evaluated on a ­case-by-case basis, and
state courts may continue to
be the favored venue in certain
instances.
Nevertheless, the harmonization of trade secret law in the
federal courts is long overdue.
The former regime of statebased laws alone was not well
suited for a globalized and digitized society. Businesses today
typically store their proprietary
“know-how” – business plans,
manufacturing processes, and
secret recipes – in digital form
and on servers with numerous
access points. The immense volume of information to be managed makes it especially difficult
for businesses to detect and
respond to instances of misappropriation, as proprietary
information can be wrongfully attained and disseminated
instantly. Faced with the troubling reality that valuable company assets may have been
stolen, a company will now have
the opportunity to seek immediate and effective relief that
does not include maneuvering
through a complicated maze of
differing and sometimes conflicting state substantive and
procedural laws.
The DTSA will provide much
welcomed clarity for businesses,
particularly those that operate
across state and country lines.
Trade secret owners will be able
to readily assess what information or property is protectable,
to enter agreements that more
clearly define their rights and
obligations and to operate with
the comfort of knowing that
they can move expeditiously to
enjoin a misappropriation and
even seize materials, if necessary. The new law is well-tailored
for the realities of commerce and
technology in today’s society.
Aaron H. Marks is a p
­ artner
at Kasowitz, Benson, Torres &
­Friedman and is a trial lawyer
focusing on complex commercial
litigation. He has extensive experience litigating significant trade
secret cases, on both the plaintiff
and defense side, as well as handling such cases where parallel
criminal grand jury investigations
have been undertaken. Drew B.
Hollander is an associate at the
firm who joined after completing a federal district court clerkship. He has experience handling
a variety of patent, copyright and
trade secret disputes.
Reprinted with permission from the May 17, 2016 edition of
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