New Federal Trade Secret Law Adds Remedies, but Imposes New Obligations for Employers Too

Effective May 11, 2016, a new federal law adds powerful ways to protect a company’s trade secrets. That same law, however, imposes new burdens on employers if they want to make full use of the statute’s remedies. Those new burdens will apply to any contract entered into after May 11. For example, all new employee non-competition agreements and non-disclosure agreements will be impacted by these new requirements.

Historically, the various states have each had their own trade secret statutes that provide for injunctions to stop someone from using your trade secrets, compensatory damages, and in some cases the ability to recover attorney’s fees and double or triple their damages for “malicious” misappropriation of their trade secrets. The new federal law will not replace those state laws. Instead, the federal Defend Trade Secrets Act (“the Act”) will provide additional options.

One major addition is the possibility to ask the court for a seizure order. If a company can prove that there is a great risk that the trade secrets will be removed or hidden, the Court can order that materials and information be seized from the party believed to have misappropriated the information. The seizure of that property will likely have a much greater impact than simply an injunction that tells the person not to make use of it or disclose the information.

A couple reasons appear to have driven the near unanimous passage of this Act in Congress. First, the Act permits these claims to be brought in federal courts where the procedures make it much easier to issue subpoenas and obtain information in interstate or international disputes. Second, the Act is intended to provide more uniformity in how trade secret claims are handled. The belief is that the federal courts can accomplish that better than the courts of the 50 states applying their own versions of trade secret law.

The Act also provides “whistleblower” protection that allows a person to disclose trade secrets to federal, state, or local governments, or to an attorney for purposes of investigating a potential violation of the Act. The Act requires that an employer provide notice to any employee of those whistleblower rights whenever the employer and employee enter into a contract that “governs the use of trade secrets or other confidential information.” That language appears likely to cover most typical employee noncompetition agreements and nondisclosure agreements. Also important to note is that Congress defined “employee” under the Act to include “any individual performing work as a contractor or consultant for an employer.”

If an employer fails to include this whistleblower notice in its future contracts, the employer will lose some of the Act’s available remedies such as the ability to recover attorney’s fees or double damages.

Protections and remedies will remain available under state law. But, the powerful remedies provided for in the Act will make it well worth employers’ time to consider modifying their trade secret, confidentiality, and nondisclosure agreements with employers, consultants, and contractors. If you have any questions regarding the Act, how it may impact your existing agreements, or how to prepare new agreements, please contact me at (513) 852-6050.

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  • About the Author

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    Jeffrey R. Teeters

    Jeff Teeters practices in the firm’s Litigation Practice Area and serves as the practice area's vice-chair.  The majority of his work focuses on assisting clients manage their interactions with their competitors.  He provides counsel and litigation services in the areas of business and commercial, antitrust, trade secrets, non-compete agreements, unfair competition, shareholder, director and officer disputes, and professional liability.

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