New Obligations to Defend Your Trade Secrets
On Wednesday, May 11, 2016, President Obama signed into law the “Defend Trade Secrets Act of 2016,” which provides an extraordinarily strong civil seizure provision – and an important notice requirement to employees, contractors and consultants that all employers who even think they have trade secrets should add to their contracts and employee handbooks. This act marks a long-term effort to fully “federalize” an intellectual property right that has been traditionally protected by state civil and criminal law.
California enacted the Uniform Trade Secrets Act (Cal. Civ. Code §§ 3426.1 – 3426.11) back in 1985. Up to now, 48 of the 50 states have passed substantially the same law, with New York and Massachusetts missing out. Up to now, the only federal protection of trade secrets was criminal laws against economic espionage. The federal law is substantially the same, but there are two important new aspects.
The first is not only the availability of the federal courts, but some aggressive remedies that can effectively end the case at the very beginning – a huge advantage to plaintiffs. It authorizes courts to use federal and state law enforcement to seize objects – including electronics – that contain the trade secrets.
However, Congress put distinct limits on its use – and judges will tend to be extremely careful to authorize this sort of civil seizure. Unlike in state court, where a minor undertaking (usually a $10,000 bond, costing about $200) is made to secure the losses of the defendant if the order was wrongfully issued, the potential damages to the plaintiff is unlimited, despite the existence of the bond. See 18 U.S.C § 1836(b)(2)(G). Compare this potential consequence to that of law enforcement officials, who can be allowed to make simple mistakes in carrying out arrest warrants without risking ruinous lawsuits. This will put a heavy burden on plaintiff’s counsel to get it right – the first time. Civil seizures will tend to be used only in the most assured of cases.
The second aspect of note regards immunities to the trade secret laws should someone report or file a complaint about an alleged legal violation. This is important to all employers who have trade secrets that they may want protected, because without that notice, punitive (also called exemplary) damages are not available, according to 18 U.S.C. § 1833(b). Employers must provide a notice to employees, independent contractors and consultants of the immunity in a handbook, contract or some other policy document available to the employee. Given the cost (posting a notice) versus the reward (extra damages, up to twice the actual damages), every employer should provide the notice.