Defend Trade Secrets Act of 2016

Defend Trade Secrets Act of 2016 by Richard Friedman

In the Digital Information Age, where electronic data containing confidential information is so easily transferable, employers face a dilemma. On the one hand, they generally want to allow employees as much access to information as possible to promote efficient and uninterrupted workflow. On the other hand, there is always the risk that employees with access to highly sensitive information may misplace hard copies and/or flash drives containing such information or purposefully take key information to use on behalf of a competing future employer, for a business they have started or intend to start, or to damage the company because of a personal vendetta.  

Defend Trade Secrets Act of 2016 

To address this dilemma, the Defend Trade Secrets Act of 2016 (DTSA) was signed into law by President Obama on May 11, 2016, and became effective immediately. It provides for enhanced remedies for misappropriation of information deemed to be trade secrets and creates a number of new remedies for plaintiffs. The Act creates a federal civil cause of action for trade secret misappropriation for the first time and provides for the following remedies: injunctions; damages awards for economic loss arising from the misappropriation; and “in extraordinary circumstances” issuance of “an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” Further, if a court finds that the “trade secret is willfully and maliciously misappropriated,” it may “award exemplary damages” up to twice the amount of the damages awarded. 

Employers’ Responsibilities Under the Act 

In order to avail themselves of the Act’s remedies, trade secret owners must inform their employees that they will not be held liable for disclosures of information deemed to be trade secrets that “(A) [are] made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) [are] made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” Once employees are on such notice vis-a-vis a written policy in a company code of conduct or otherwise, employers may seek remedies under the DTSA. 

But the DTSA is not intended to blindly empower employers against employees. “If a claim…is made in bad faith, which may be established by circumstantial evidence,” or “a motion to terminate an injunction is made or opposed in bad faith,” a court can award reasonable attorney’s fees to the prevailing party. In addition, if the court finds that the seizure order was “wrongful or excessive,” the defendant “has a cause of action against the applicant for the order under which such seizure was made….” 

The foregoing measures were included to protect individuals against wrongful claims. Needless to say, trade secret owners and their counsel must carefully evaluate possible claims under the DTSA before commencing legal action.

Richard B. Friedman
Richard Friedman PLLC
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New York, New York 10022
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rfriedman@richardfriedmanlaw.com
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