How Will the New DTSA Help Employers Protect Trade Secrets?

This opens up federal courts to trade secret owners even without a separate basis for federal jurisdiction, provided that the trade secret “is related to a product or service used in, or intended for use in, interstate or foreign commerce.” Substantively, the DTSA is similar to the South Carolina Trade Secrets Act (“SCTSA”) in defining “trade secret” and “misappropriation” (the definition of “trade secret” is arguably broader under the SCTSA). The DTSA does not preempt the SCTSA or other state law claims. However, there are some important distinctions between the DTSA and the SCTSA that are worth noting.

First, the DTSA protects individuals from liability for disclosing a trade secret in confidence to a government official or an attorney, if such disclosure is solely to report or investigate a suspected violation of law. Significantly, the DTSA requires employers to provide notice of such immunity in any agreement with an employee, contractor, or consultant that “governs the use of a trade secret or other confidential information” or by cross-referencing a policy document provided to the employee, contractor or consultant. This requirement is for all such agreements entered into or updated after May 11, 2016. Failure to comply prevents an employer from recovering exemplary damages (double actual damages) or attorney’s fees under the DTSA, which would otherwise be available in cases of willful and malicious misappropriation. Consequently, employers should add an appropriate notice provision in all agreements (handbooks included) relating to trade secrets or confidential information.

Moreover, unlike the SCTSA, the DTSA provides for ex parte seizures, which means the plaintiff can seek to have the government seize property necessary to prevent dissemination of the trade secret, even without prior notice to the opposing party. Though such seizure is only available in “extraordinary” situations, this is a new and powerful tool. Among other things, the trade secret owner must show that immediate and irreparable injury will occur without the seizure, other equitable relief is inadequate because the opposing party would evade or disobey such order, the owner is likely to succeed on the merits of the DTSA claim, the opposing party would destroy, hide, or otherwise make such matter inaccessible to the court if the owner provided prior notice, and the owner has not publicized the requested seizure. The DTSA provides some protections from abuse of this powerful remedy, including a cause of action for a party who has been damaged by “a wrongful or excessive seizure.”

The goal of the DTSA is to provide uniformity to what some have argued to be inconsistent trade secret laws amongst the states (despite most states having passed a form of the Uniform Trade Secrets Act). The full impact of the DTSA remains to be seen. What is clear is that the DTSA provides another tool for employers seeking to protect their trade secrets.