defend trade secrets act of 2016

The Defend Trade Secrets Act of 2016:What You Need To Know

Claire Laporte

© 2016 Foley Hoag LLP. All Rights Reserved. 2

Agenda Background: trade secrets and the shift away from patents The DTSA’s new private right of action

Basic provisions and the change in existing law “Reverse preemption” New seizure remedy Whistleblower protections and the need to update contracts

Other best practices under the new structure


Trade Secrets: the Basics

Restatement of Torts, § 757 / Common Law Restatement of Unfair Competition, 3d Uniform Trade Secrets Act (UTSA) Other state Statutes Federal: EEA, FOIA, ITC International treaties: TRIPS, TPP

No registration system


Trade Secrets Find Their Way Into Court


The Shift from Patents to Trade Secrets Turmoil in the patent world “Troll” litigation in Eastern

District of Texas Total cost of patent litigation

leaps into the high 7 figures


The Shift from Patents to Trade Secrets Difficulty of launching troll-type

litigation about trade secrets New emphasis on trade secrets

But many technologies can’t be protected using trade secrets

And trade secrets are different!


Patents or Trade Secrets?

PATENTS TRADE SECRETS

Require public disclosure Destroyed by public disclosure

Term: 20 years Term: as long as you keep the secret

Can protect reverse-engineerable items

No protection against reverse engineering

Obtained by prosecution; maintained by payments

Can be labor-intensive to maintain; requires reasonable efforts to keep secret

Exclusive: no unlicensed use permitted

Non-exclusive: use prohibited only if it results from misappropriation

Must be non-obvious, adequately described, and useful

Must acquire value from not being generally known


New Private Right of Action

Legislation flew through otherwise gridlocked Congress Commerce Clause-based: applies only to trade secrets

“related to a product or service used in, or intended for use in, in interstate or foreign commerce”

Jurisdiction in either federal or state court Diversity no longer needed to bring a trade secret action in federal

courtBut seizure provisions are effectively federal only

No preemption of state law Potential impact on inevitable disclosure doctrine


Employee Mobility and “Reverse Preemption”

Injunctions under the new law do not restrict employee mobility An injunction may not prevent a person from entering into an

employment relationship Conditions placed on employment “shall be based on evidence of

threatened misappropriation and not merely on the information the person knows”

Injunctions may not “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business”


Ex Parte Seizure Process

Available only “in extraordinary circumstances” Purpose: “to prevent the propagation or dissemination of the

trade secret”But apparently not to prevent the misappropriation itself

Requirements include typical elements for injunctive relief, plus: Injunctive relief otherwise available must be

insufficient Application must show that if notice were

provided, the evidence would be destroyed, moved, hidden, or otherwise made inaccessible to the court

Relief only available if applicant has not publicized the requested seizure


Seizure: the Mechanics Seizure to be made by “Federal law enforcement officer” Order must “provide for the narrowest seizure of property

necessary to achieve the purpose of this paragraph” Order must minimize interruption of:

Business operations of 3d parties Legitimate business operations of target

Court must protect the target “from publicity, by or at the behest of the person obtaining the order, about such order and any seizure under such order.”

Seized materials to be in court custody Special master may be appointed to sift through the

material Damages for wrongful seizure available


Giving Notice to Whistleblowers

“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 … is made … in confidence to a … government official … or to an attorney … solely for the purpose of reporting or investigating a suspected violation of law”; trade secrets may also be used in anti-retaliation proceedings relating to a “suspected violation of law ….”

“NOTICE…. An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”


Whistleblower Provisions

Failure to provide notice of whistleblower immunity results in loss of exemplary damages and attorney fees.Likely result: continuing reliance on state law causes of actionNote “optional” notice theory

Broad definition of “employee”: “For purposes of this subsection, the term ‘employee’ includes any individual performing work as a contractor or consultant for an employer.”


Contractors and Consultants

Statute confers immunity on “an individual” who blows the whistle.

Mohamad v. Palestinian Authority, 132 S.Ct. 1702, 1707 (2012) (the term “individual” in the U.S. Code must be construed to mean natural persons alone, and not organizational entities, absent evidence of contrary Congressional intent)

Thus, probably no requirement to provide notice in contracts with entities (firms, companies, professional associations, partnerships)


Action Plan: Contract Review (1) Update employee/consultant manuals/agreements:

Provide notice of whistleblower immunity Check confidentiality provisions: they matter Check invention assignment provisions to be sure they cover:

Know-how Financial, business, scientific, technical, economic, or engineering information Patterns, plans, compilations, program devices, formulas, designs, prototypes, methods,

techniques, processes, procedures, programs, or codesAny other items likely to be protectable as trade secrets

Consider jurisdiction and forum provisions with foreign contractors and consultants


Action Plan: Contract Review (2)

Review and plan for licenses, collaborations, and JVs: Provide for reasonable measures to safeguard trade secrets Require counterparties to provide notice of whistleblower immunity to

their own employees/consultants/contractors Be clear who “owns” trade secrets developed in JVs, collaborations,

and other agreements involving information flowsNote that a rogue co-owner can destroy the entire value of the trade secret – trade

secrets are more vulnerable than patents

Consider drafting provisions to determine how information will be protected: patent or trade secret?Be sure nobody files for a patent on something that is better protected as a trade

secret!


Action Plan: Contract Review (3)

Be careful during financing and M&A discussions and other non-collaborative information exchange situations: Be sure that there are adequate NDAs in place Consider jurisdiction and forum provisions with foreign counterparties


Proving Need for Seizure

Proving need for seizure will involve precautionary steps that should be taken anyway: Employee/consultant/contractor NDA and information assignment

agreements Need-to-know access for sensitive information Routine monitoring of computer account access anomalies Analytics for computer use by departing or recently departed

employees Safeguard physical facility spaces Label physical items when possible

The Defend Trade Secrets Act of 2016:What You Need To Know

Claire Laporte