New Federal Trade Secrets Act

New Federal Trade Secrets Act

January 4, 2017

by Jerry Glover

In May, 2016, Congress passed, and President Obama signed into law, the federal Trade Secrets Act. This new law allows a trade secrets owner to file a lawsuit in federal court against a person or entity that the owner believes has misappropriated those trade secrets. Until enactment of this new federal law, trade secret matters were filed in state courts based on that state’s trade secrets statute. Although most of those state laws copied the Uniform Trade Secrets Act’s definition of “trade secret”, some state laws differed in their definitions. The hope is that the new federal law will bring some uniformity to the areas of trade secrets jurisprudence. The Trade Secrets Act, however, does not preempt state trade secret laws. So when a trade secrets owner files in federal court, the owner’s complaint will now probably have both federal and state trade secret claims.

One aspect of the new federal law allows a trade secrets owner to request from a federal district court an ex parte seizure order to prevent the dissemination of stolen trade secrets. Ex parte means the alleged trade secrets thief is not notified in advance of the seizure request. Because there is no notice to the defendant, a trade secrets owner requesting the ex parte seizure has a very high burden of proving that the alleged thief is a flight risk or that a massive breach of secrecy has occurred either of which will result in severe harm without the ex parte order. If the ex parte request is granted but results in a wrongful seizure of the defendant’s property, the new federal law provides an action to the defendant for damages caused by the seizure.

Typically, the bill allows the trade secret owner to recover damages based on the owner’s actual loss and for unjust enrichment.   If actual damages are difficult to prove, the new law allows the owner to require a so-called reasonable royalty. Where the owner can prove that the defendant acted maliciously or willfully, the owner can collect exemplary damages.

The drafters of the new law were farsighted enough to include a provision dealing with whistleblowers. This part of the act prohibits prosecution for trade secret theft and disclosure if the disclosure was made to report a violation of law. Importantly, employers must now provide a notice of whistleblower immunity for trade secret matters in agreements with employees, contractors and consultants. This new requirement became effective on May 12, 2016 and applies not only to new agreements but to amendments to those agreements entered into on or after May 12, 2016. The notice required to be given can simply be a reference to the immunity requirement in an employer’s own employee policies handbook.

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