Daley Mohan Groble - DMG Updates

DEFEND TRADE SECRETS ACT: HOW BUSINESSES ARE TAKING ADVANTAGE

The enactment of the Defend Trade Secrets Act on May 11, 2016, caused quite a stir in business and legal circles. The DTSA was enacted in large part to address Digital Age concerns regarding Chinese and Russian corporate espionage and cyber-crimes committed by computer hackers. Meanwhile, traditional trade secret issues continue to arise with each hiring and firing, with each signing of a contract containing restrictive covenants, and, indeed, each time an employee talks shop with industry colleagues.

Moreover, strong state laws already protect against trade secret misappropriation in many jurisdictions, including Illinois.

Just shy of ninety days after its enactment, how are employers taking advantage of the DTSA?

THE DTSA OPENS THE DOORS TO FEDERAL COURT

Most notably, the DTSA created a federal civil cause of action for trade secret misappropriation and, in doing so, opened the federal courts to employers' civil trade secrets claims. Federal jurisdiction no longer turns on the citizenship of the parties and the amount in controversy or the existence of a federal claim parallel to a misappropriation claim.

EMPLOYERS MAY BRING STATE LAW TRADE SECRET CLAIMS AND RELATED STATE LAW CLAIMS IN FEDERAL COURT ALONGSIDE DTSA CLAIMS

Moreover, the DTSA does not preempt state laws that already protect employers; it supplements them. Employers can continue to take advantage of favorable provisions of state business tort and trade secret laws that, in Illinois, for example, include the "inevitable disclosure" doctrine.

That doctrine, unavailable under the DTSA, allows a court to enjoin a former employee from working for competitor when the employee cannot help but disclose or rely upon trade secrets gained from a former employer, irrespective of whether restrictive covenants are in place.

Similarly, the Illinois Trade Secrets Act provides for punitive damages and attorneys' fees where misappropriation was "willful and malicious", while the DTSA provides for punitive damages and attorneys' fees in those circumstances only after a employer has provided notice of its whistleblower and anti-retaliation provisions to employees and independent contractors.

Employers, then, can use the DTSA as a gateway to file in federal court claims under the DTSA, state trade secret laws, and the kinds of pendent state law claims that often accompany employment suits, like breach of contract and breach of covenant claims. Our review of DTSA cases filed since its enactment suggests that many employers are using the DTSA in precisely this manner.

EX PARTE SEIZURE ORDERS & ENHANCED DAMAGES UNDER THE DTSA

Unlike any state law remedy, the DTSA authorizes federal courts to seize personal property, in an expedited manner and on an ex parte basis, if necessary to prevent the disclosure, dissemination, or destruction of a trade secret. By way of example, this provision allows a federal court, in "extraordinary circumstances", to seize from a former employee or third-party a client list, drawing, or other trade secret without notice to the former employee or third-party.

Of note, the DTSA immunizes whistleblowers from liability for the confidential disclosure of a trade secret to law enforcement or an attorney when the purpose is to report a suspected violation of the law. It also provides anti-retaliation measures. In order to take advantage of the DTSA provisions allowing for punitive damages and attorneys' fees, mentioned above, an employer must provide employees and independent contractors with notice of the whistleblower and anti-retaliation provisions in agreements or policy documents that touch on trade secrets.

WHAT SHOULD AN EMPLOYER DO NOW?

Savvy employers should anticipate that federal courts are likely to become the primary forum for trade secret litigation and prepare accordingly. As a result, employers should:

  • Identify information valuable to your organization and take immediate steps to protect that information as "trade secrets". Employers cannot pursue claims for trade secret misappropriation under state law or the DTSA unless it implements reasonable measures to protect information as trade secrets in the first place. Strategies to consider with counsel include amending agreements and policy documents to identify trade secrets, having employees sign restrictive covenants, implementing hiring and firing procedures, and providing ongoing employee training programs regarding trade secrets;
  • Amend agreements and policy documents that touch on trade secrets to take advantage of DTSA provisions allowing for punitive damages and attorneys' fees;
  • Prepare a response procedure to effectively use the DTSA ex parte seizure mechanism;
  • Monitor developments in both state and federal trade secret law;
  • Have counsel review agreements, policies, handbooks, restrictive covenants, and other documents to ensure compliance with both state trade secret law and the DTSA.

If you have questions about the DTSA, the Illinois Trade Secrets Act, or methods to identify and protect trade secrets, please contact the DMG attorney with whom you usually consult.

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