New Federal Trade Secrets Law Enacted

Authors:  Kristina Curry and Matt Stokely

On April 27, 2016, Congress passed an amendment to the Economic Espionage Act of 1996, known as the Defend Trade Secrets Act of 2016(“The Act”), which for the first time creates a federal civil remedy for misappropriation of trade secrets.  The amendment was signed into law on May 11, 2016 and goes into effect immediately.  While it is important to note that the new law does not pre-empt Ohio laws on trade secrets, the new federal provision provides a new mechanism for bringing a civil misappropriation suit in federal court and provides additional remedies, including a pre-judgment, ex parte civil seizure provision.  The goal of the Act, which received broad bi-partisan support in Congress, is to provide uniformity and certainty for the protection of trade secrets.

tradesecretsThe relatively low threshold for bringing an action in federal court under the Act only requires that the trade secret be “related to a product or service used in or intended for use in interstate or foreign commerce.” Trade secrets are defined as things that derive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from disclosure or use, if they are also the subject of efforts that are reasonable under the circumstances to maintain secrecy.  There is a new three year statute of limitations for filing claims for misappropriation of trade secrets under the Act.

The Act provides for a potential federal civil seizure of “property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action”.  Upon an evidentiary showing, in extreme circumstances where a seizure would be warranted and necessary to protect trade secrets pending federal litigation, a court may order that the subject of the trade secret be seized from the defendant in an action for misappropriation under the new law.  In addition, the Act provides for potential remedies including compulsory licensing and remedies for unjust enrichment.

From an employment perspective, there are two new provisions  in the Act , which may be relevant to existing trade secret and confidentiality agreements. The Act affords new federal whistleblower protection and immunity to employees who disclose trade secrets to federal, state and local government agents in connection with reporting a potential violation of the law. In addition, in order to gain the benefits of protection against the misappropriation of trade secrets, employers must now provide such notice of immunity within the text of the trade secret and confidentiality agreements signed by their employees.   Also, since the Act does not pre-empt State laws, employers should ensure that the provisions of such agreements are reasonable under Ohio law regarding restrictions on employees’ future employment.

Employers and businesses should review their existing agreements with employees to ensure that, in the event of misappropriation or violation of a non-competition agreement, that they will have the benefit of choosing between a federal or state forum in which to litigate claims and potentially benefit from these new federal civil remedies for misappropriation of trade secrets.

The attorneys at Pickrel, Schaeffer & Ebeling are available to discuss with you how the Defend Trade Secrets Act of 2016 impacts your business from both a business and employment law perspective.  Our interdisciplinary approach to new developments in the law has helped employers and businesses respond to changes efficiently and effectively,  particularly in an ever-changing federal regulatory environment.  Contact us today at (937) 223-1130.

AUTHOR: Kristina Curry