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Defend Trade Secrets Act of 2016: What Does It Mean for Employers? - July 18, 2016

Matthew A. Warner-Blankenship Michele L. Warnock Brott

This post was written by summer associate, Megan Hingtgen and edited by intellectual property attorney, Matthew Warner Blankenship and employment law attorney, Michele L. (Warnock) Brott.


On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA) into law, creating a federal claim for misappropriation of trade secrets. Concerns with the difficulty of protecting trade secrets have grown as misappropriation has become particularly damaging, with economic losses due to trade secret theft costing the American economy between $300 and $500 billion annually.[i] As a result, the bill was passed unanimously in the Senate and has received strong political and business support.


What Types of Information Does the DTSA Protect?

As the name suggests, the DTSA protects intellectual property in the form of trade secrets. Trade secrets can protect a wide variety of things, including processes, client lists, advertising techniques, sales methods, formulas, and recipes as well as financial, scientific, technical, engineering, or other forms of information. The DTSA has not changed the definition of a trade secret. To have a trade secret, the information you seek to protect must be a secret (i.e., not generally known) and must be subject to reasonable measures of protection. Examples of reasonable measures include a combination of security measures, need-to-know exposure, and contractual protection, such as non-disclosure agreements.


Trade secrets, unlike other forms of intellectual property, are not subject to time-based limits on protection. If your business takes reasonable measures to maintain the secrecy if its trade secrets, they will be protected until you choose to make them known.


What Impact Will the DTSA Have on Employers?

The DTSA was created as a way to remedy the inconsistencies between states arising under the Uniform Trade Secrets Act (UTSA) as a result of the impact of state laws and judicial interpretation. Although the inconsistencies between state laws are generally minor, they can change the outcome of a case by affecting things like who has the burden of establishing that the trade secret was adequately protected, whether the owner has rights against a party who innocently acquired a trade secret, or the scope of the information that can be protected as a trade secret.


However, while the DTSA seeks to provide more uniformity and predictability to trade secret protection, the law does not preempt or overturn existing state laws or the UTSA. As a result, businesses will have access to both state and federal remedies for trade secret misappropriation. A few of the major changes with the DTSA are (1) federal remedies and the ability to obtain ex parte seizures in extraordinary circumstances; (2) specific requirements for notice to employees informing them of immunity for those who use trade secrets in certain circumstances, such as for whistleblowing; and (3) global reach for international misappropriation.


The Big Picture

Whether or not your business will need to take action under the DTSA will depend on your business's trade secrets, how much your business depends on protection of those secrets, your state(s) of operation, and whether or not those states provide predictable protection of trade secrets and remedies for misappropriation. Businesses should consult with legal counsel to determine the best practices for their particular situation. Regardless of the changes in trade secret law, businesses should continue to make diligent efforts to protect their trade secrets from theft or disclosure.

[i] S. Rep. No. 114-220, at 2 (2016).