President Obama on May 11 signed into law Senate Bill 1890, the “Defend Trade Secrets Act of 2016.” The bipartisan measure amends the Economic Espionage Act of 1996 to create a federal civil remedy for trade secrets theft. According to its sponsors, the legislation will help American innovators protect their intellectual property. Trade secrets include such vital proprietary information as confidential formulas, manufacturing techniques, and customer lists. The legislation passed the House on April 27 and passed unanimously in the Senate on April 4. The law takes effect immediately and applies to any acts of trade secrets misappropriation taking place after the date of enactment. Trade secret defined. The Defend Trade Secrets Act (DTSA) creates a uniform federal standard for trade secret misappropriation. The DTSA defines a “trade secret” as “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible.” To obtain protection, the owner must take reasonable measures to keep the information secret. Additionally, trade secrets are covered by the DTSA only if they derive independent economic value, actual or potential, from not being generally known or ascertainable. The DTSA’s definition of “misappropriation” resembles that of the Uniform Trade Secrets Act, but it does not prohibit “reverse engineering, independent derivation, or any other lawful means of acquisition.” The DTSA does not preempt state law. The statute will allow companies to craft one set of nondisclosure policies, rather than the piecemeal approach required previously, when civil remedies for trade secret misappropriation were available only under state laws, with varying standards and requirements. The DTSA provides for injunctions and damages, including ex parte seizure authority when it is needed to prevent the disclosure or further dissemination of a stolen trade secret. The DTSA also amends the RICO Act, 18 U.S.C. §1961(1), to add violation of the Economic Espionage Act as a predicate act of racketeering. Whistleblower provisions. The statute authorizes monetary and injunctive relief, while safeguarding the freedom of employees to move from one job to another and providing limited immunity to whistleblowers. According to Fisher & Phillips partner Michael R. Greco, “employers are required to provide employees with notice that they are entitled to immunity if they disclose a trade secret for the purpose of reporting suspected illegal conduct. If employers fail to give notice in the manner required by the DTSA, they will not be able to recover punitive damages or attorneys’ fees. Consequently, employers must pay careful attention to the DTSA notification requirements, which are not as straightforward as many believe.” Writing in the Non-Compete and Trade Secrets blog post Employers, Beware: New Federal Trade Secrets Law Contains A Hidden Trap, Greco goes on to explain that the law “states that individuals shall not be held criminally or civilly liable under any trade secret law if they disclose the secret in confidence to a government official or an attorney solely for the purpose of reporting or investigating suspected unlawful conduct. This immunity also extends to disclosures made in court papers (or other proceedings) if the filing is made under seal. Finally, immunity is available for disclosures made within anti-retaliation lawsuits so long as the papers are filed under seal. “The statute contains a notification requirement requiring employers to provide notice to employees, which is defined broadly to include contractors. It states: ‘An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information,’” he points out. The statute of limitations for the DTSA is three years “after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered.” A continuing misappropriation is considered a single claim of misappropriation.
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