What’s To Know About the Defend Trade Secrets Act of 2016

Congress has passed the Defend Trade Secrets Act of 2016 and the president is expected to sign it into law. The DTSA allows suits in federal court for misappropriation of trade secrets. Before the DTSA, most litigants would sue in state court under the Uniform Trade Secrets Act (the UTSA), approved by 48 of the 50 states (New York and North Carolina being the exceptions).

What is a trade secret?

It remains what it was: Your interpretations, evaluations, and that other work product that derives economic value from not being generally known to your competition. The operative word is “secret”. The key is to take reasonable steps to prevent unauthorized disclosure. Anything on the wall in your booth at NAPE is pretty much toast.

Why would I use the DTSA instead of the UTSA?

Here are several reasons:

  • It is a federal statute, which means federal court jurisdiction. There could be benefits in a particular case to be in federal court.
  • It allows seizure of property to prohibit the dissemination of a trade secret without advance notice to the other side in “extraordinary circumstances.”
  • It increases penalties for a criminal violation from $5 million to the greater of $5 million or three times the value of the stolen trade secret.
  • It allows recovery of actual damages, restitution, injunctive relief, exemplary damages of up to two times actual damages, and attorney’s fees.
  • If you’ve been paying attention you should already be protected by a confidentiality agreement, but the statute provides additional rights and remedies.

Do I need to act?

The statute does not eliminate the need for confidentiality agreements when showing a prospect. You will want to update your employment agreements to include the immunity notice required under the DTSA so that you can also recover punitive damages and attorney fees from an employee gone wrong.

Speaking of trademarks

This act doesn’t address your logos, slogans and other manifestations of your “brand” that could be protected by existing copyright and trademark laws. You do that by registering. Gray Reed can help.

Why do we need this legislation?

There are two theories. First, there are benefits of uniformity and consistency in the law. Plus, service and discovery is often easier and more orderly in federal court, especially between litigants from different states. And there would be less jockeying between state and federal court.

The competing theory: Having failed to eradicate the federal debt, balance the budget, stabilize Social Security and Medicare for the sake of our grandchildren, replace the Affordable Care Act, reform immigration laws, and slow the avalanche of overbearing federal regulations, Congress chose a bipartisan agenda: Feeding its insatiable need to federalize every aspect of life in our great country. Nothing says “Git Er Done” like a new federal statute that duplicates existing law in 48 states.

There’s more to know

Here is an article on the topic by Gray Reed employment lawyers Michael Kelsheimer, Travis Crabtree and the aforesaid David Lisch.

Guy Clark, RIP. Compare his original to Jerry Jeff’s.