Defend Trade Secrets Act Provides New Remedies – With a Few Catches

On May 11, 2016, the Defend Trade Secrets Act (the “DTSA”) was signed by President Obama and became effective immediately.  The new Federal law provides for a civil action in the United States District Courts, with remedies that include compensatory damages and, in certain “extraordinary circumstances,” seizure of misappropriated trade secrets.  Where a trade secret is “willfully and maliciously misappropriated,” the DTSA permits exemplary damages in an amount up to twice the compensatory damages awarded, as well as reimbursement of attorneys’ fees.  The DTSA does not preempt additional claims or rights available under State law.

There are limitations worth noting.  First, the DTSA does not permit an injunction preventing an individual from entering into an employment relationship.  Any injunction that would place conditions on employment must be based on “evidence of threatened misappropriation and not merely on the information the person knows.”  Further, crucially, an injunction under the DTSA may not “conflict with applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”

Moreover, an employer cannot recover exemplary damages or attorneys’ fees if, in an agreement entered into with an employee that governs the use of a trade secret or confidential information, the employer fails to include notice of certain whistleblower provisions contained in the DTSA.  An employer may comply with the notice requirement by a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.  The notice requirement applies to agreements entered into on or after the effective date of the DTSA.