I would like to take a break from discussing patent cases that were decided by the Supreme Court recently to discuss a new federal law, The Defend Trade Secrets Act, which was enacted on May 11, 2016.

Trade secrets can be an overlooked form of intellectual property. However, trade secrets are an important form of intellectual property, as evidenced by the April 15, 2016, verdict for $940 million against Tata Corp. for stealing information related to Epic Systems Corp.’s healthcare software. The verdict included $700 million in punitive damages.

The Act amended federal law to allow private parties to use federal law to enforce their trade secrets. Prior to the enactment of the law, the U.S. government was the only party that could use federal law to enforce trade secrets. Private parties could use federal courts to enforce their trade secrets, but these actions were governed by state law.

The Act provides private parties with two traditional types of remedies, damages and injunctive relief. The Act also provides another remedy, the right to seize “property necessary to prevent the propagation or dissemination of the trade secret” at the start of litigation.

The statute of limitations to bring an action under the new law is three years. The statute begins to run when the trade-secret owner discovers (or reasonably should have discovered) the misappropriation.

The Act does not preempt existing state law actions. The definition of a trade secret is similar to the definition that is used in the Uniform Trade Secrets Act (a model law that provides for the basis for trade-secret law in 47 states). However, there are slight differences.

The Act also increased certain criminal penalties for trade-secret misappropriation but provided certain immunities to whistleblowers. Specifically, the Act required employers to include certain notice provisions in their employment contracts to potential whistleblowers. Consequently, employers should amend their standard employment contracts to include the following language:

Immunity from Liability for Confidential Disclosure of a Trade Secret to the Government or in a Court Filing: (1) Immunity – An individual shall not be held criminally or civilly liable under any federal or state trade-secret law for the disclosure of a trade secret that (A) is 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) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. (2) Use of Trade Secret Information in Anti-Retaliation Lawsuit – An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade-secret information in the court proceeding, if the individual-(A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.”

Please note that the requirement to include this notice provision is prospective so that there is no need to revise any existing employment contracts. However, it would be a good idea to update your company’s employee handbook to include this notice.  

The passage of the Act occurred around the same time as the passage of a Directive within the European Union Parliament to harmonize trade-secret law within the member countries of the EU. The EU-member countries have two years to implement the Directive.