The New Federal Trade Secrets Law: What You Need to Know

On May 11, 2016, President Barack Obama signed the Defend Trade Secrets Act (DTSA) into law. This is the first federal private right of action for trade secret misappropriation. The key aspects to this new law are:

• Provides federal subject matter jurisdiction for a new federal  trade secret misappropriation claim
• Provides for ex parte seizure orders to prevent dissemination of misappropriated trade secrets
• Similar to federal trademark law and state trademark law, the new federal trade secrets law does not supplant but exists in addition to the pre-existing state trade secrets law
• Provides for multiple damages and an award of attorney’s fees in certain circumstances
• Provides for injunctive relief against former employees based on evidence of threatened misappropriation, but does not permit this injunction to prevent a former employee from entering into new employment

Massachusetts and New York Law

The DTSA is of particular importance in New York and Massachusetts, which are the two remaining states that have not adopted the Uniform Trade Secrets Act.[1] Although the DTSA expressly does not supplant the pre-existing state trade secret laws, Massachusetts and New York will now also be governed by the DTSA’s nationwide, federal definition of a trade secret, trade secret misappropriation, and potential multiple damages/attorney’s fee awards.

The “Inevitable Disclosure” Doctrine

Courts in Massachusetts have repeatedly denied requests for an injunction to prevent a former employee from taking a job with a competitor based only on the threat of misappropriation of trade secrets.  Similarly, New York has applied the inevitable disclosure doctrine in very limited circumstances.  It appears that the DTSA has adopted this prohibition on an injunction preventing an employee from getting a new job despite “threatened misappropriation.” Specifically, the DTSA provides that an injunction issued under the DTSA cannot “prevent a person from entering into an employment relationship and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows.” 

The DTSA’s Whistleblower Protections

The DTSA provides immunity from civil or criminal claims under any federal, state, or local law for the disclosure of trade secrets in confidence “to a federal, state or local government official … or to an attorney … solely for the purpose of reporting or investigating a suspected violation of law …”  The DTSA also requires an employer to provide an employee with written notice of this immunity in any contract or agreement with the employee that governs the use of trade secrets or other confidential information.  If an employer fails to provide this notice, the employer cannot be awarded attorney’s fees or multiple damages in an action against the employee for trade secret misappropriation.

The DTSA attempts to do a lot of things, including: (i) create a federal trade secret claim in federal court; (ii) preserve state law on trade secret misappropriation; (iii) protect whistleblowers; and (iv) protect the mobility of individual employees.  The federal district courts will decide how well the DTSA has achieved these goals or whether the DTSA has merely added another layer of cost and complication to state law trade secret misappropriation jurisprudence.

For questions about the DTSA, or any other intellectual property issue, please contact Jeff Francis, the author of this alert, at jfrancis@pierceatwood.com or 617.488.8136.