Small business owners can now file suit in federal court for theft of their trade secrets under the new U.S. Defend Trade Secrets Act of 2016.

In 2016, President Obama signed into law the Defend Trade Secrets Act (the “DTSA”). The DTSA expands the Economic Espionage Act of 1996 to include a private cause of action for trade secret misappropriation. Before the DTSA, trade secrets and their subsequent legal ramifications have traditionally been left to the states. Most states have adopted the Uniform Trade Secrets Act (including Washington and Idaho). The DTSA is similar to the Uniform Act, but contains new provisions that have immediate implications for any business with trade secrets.

The heart of the DTSA is the addition of a private cause of action for trade secret misappropriation. Owners of trade secrets can now file suit in federal court for misappropriation of trade secrets related to products or services that are used (or intended to be used) in interstate or foreign commerce. Actions under this section must be brought in federal court, and a 3-year statute of limitations applies.

The DTSA offers remedies that are very similar to the Uniform Act. It allows plaintiffs to seek injunctive relief (i.e., court orders forcing a defendant to do or not do certain things) or money damages (such as actual losses or reasonable royalties). The DTSA also allows for punitive damages up to two times actual damages, and in certain cases prevailing parties can recover attorney fees.

One new remedy not available under the Uniform Act is civil seizure. In extraordinary circumstances, a federal court may order the seizure of property to prevent propagation or dissemination of a trade secret. However, this powerful new remedy is only available in certain narrowly defined circumstances.

In another departure from the Uniform Act, the DTSA contains exceptions from liability for disclosures made to government officials for the purpose of investigating violations of law. Essentially, this exception allows controlled disclosure of trade secrets for whistleblowers, either for reporting violations or defending against retaliation.

The DTSA requires employers to provide notice of this whistleblower exception in employment contracts and contractor agreements created or modified after the law goes into effect that govern the use of trade secrets or confidential information. Failure to provide notice can prevent the employer from recovering punitive damages or attorney fees, depriving them of what is often their biggest weapon. Employers should review their agreements immediately to assess what changes may be needed.

To the extent that the DTSA is similar to the Uniform Act, the DTSA is not a huge change for business with trade secrets. Nevertheless, the ability to sue in federal court will likely provide welcome options for some businesses. All businesses should review their employment contracts and contractor agreements to implement the new notice requirements.

We are always happy to help businesses protect their trade secrets and intellectual property. If you need assistance, don’t hesitate to call us at 253.858.5434. We proudly serve clients throughout Washington and Idaho and are available to meet in person, by phone, or via Skype or FaceTime.