AUDIO CONFERENCE ON The Defend Trade Secrets Act: New Rights and Obligations for U.S. Employers June 21, 2016 CERTIFICATE OF ATTENDANCE The undersigned certifies that attended The Defend Trade Secrets Act: New Rights and Obligations for U.S. Employers Audio Conference sponsored by the Employment Law Alliance. The program consisted of 90 instructional minutes. The program contained no credit for continuing legal education for legal ethics; elimination of bias in the legal profession; or prevention, detection, and treatment of substance abuse. To be completed by Attorney or Attendee after participation in the abovenamed activity. By signing below, I certify that I participated in the activity described above and am entitled to claim the following continuing education credit hours: Total Hours Signature
The Defend Trade Secrets Act: New Rights and Obligations for U.S. Employers Tuesday, June 21, 2016
Speakers Moderator Susan T. Spradley GrayRobinson Orlando, FL susan.spradley@gray-robinson.com 2
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Speakers David S. Fortney FortneyScott Washington, DC dfortney@fortneyscott.com Steven M. Gutierrez Holland and Hart Denver, CO sgutierrez@hollandhart.com 5
Speakers Daniel H. Handman Hirschfeld Kraemer Santa Monica, CA dhandman@hkemploymentlaw.com Scott A. Holt Young Conaway Stargatt & Taylor Wilmington, DE sholt@ycst.com 6
Defend Trade Secrets Act: Overview Scott A. Holt Young Conaway Stargatt & Taylor 7
Defend Trade Secrets Act of 2016 (DTSA) Signed into law on May 11, 2016 Amends Economic Espionage Act of 1996 Creates a federal private right of action to protect trade secrets Recovery of treble damages and fees Limited right to seize property Protections for whistleblowers 8
Trade secret laws State law 48 states - Uniform Trade Secrets Act (UTSA) MA and NY common law claim for trade secrets Federal law Why the Change Copyright, patent, and trademark laws Economic Espionage Act of 1996 (EEA) Criminalized trade secret theft, but no private remedy 9
Growing Problem of Trade Secret Theft Commission on the Theft of American IP 2013 report on U.S. trade secret theft Cost to U.S. companies = hundreds of billions of dollars Loss of millions of jobs US Attorney General Only two categories of companies affected by trade-secret theft: Those that know they ve been compromised Those that don t know yet 10
Difficulties Protecting Trade Secrets Trade secret theft Rogue employees Advances in technology Often occurs across state/national borders Overseas cyber-espionage Some working in collusion with foreign governments 11
Difficulties Protecting Trade Secrets Limited remedies available under state law Problem with filing/enforcing in multiple states Inefficiencies Inconsistencies Jurisdiction 12
How is DTSA Similar to UTSA? Similar definition of trade secrets Identical definition of misappropriation Similar remedies Injunctive relief to prevent actual/threatened misappropriation Actual damages Exemplary damages and attorneys fees for willful and malicious misappropriation 3-year statute of limitations Bad faith provision 13
What Has Changed under the DTSA? Access to federal courts without the need for diversity of jurisdiction Authorizes ex parte seizures in limited circumstances Immunity for whistleblowers who disclose trade secrets to authorities Requires written notices in agreements, policies No federal preemption of state law Companies can bring claims under DTSA and UTSA 14
DTSA Ex Parte Seizure Why was Ex Parte seizure adopted? Technology advances and ease of transporting information made it easier to steal trade secrets Need for immediate protection Recognized need to balance harm Fear of dissemination vs. infringement of property rights Limitations designed to minimize harm to 3rd parties Goods seized kept custody of the court pending a determination as to the misappropriation 15
Whistleblower and Employee Protection Protection of Whistleblowers Immunity from criminal/civil liability Disclosure to gov t or attorney Employer notice requirement Immunity provision in any contract or agreement with an employee that governs the use of a trade secret or other confidential information Limits on injunctive relief May not prevent a person from entering into an employment relationship 16
Courts DTSA will be interpreted broadly 1st year after enactment US Attorney General and other agencies Issue Report What Happens Next? Status and impact of trade secret laws (domestic & int l) Recommendations to further reduce threats 2nd year after enactment Fed. Judicial Center to review ex parte seizure rule 17
How the DTSA Will Impact Employers David S. Fortney FortneyScott 18
Key Provisions Affecting Employers DTSA provides a new, powerful federal remedy for employers to address trade secret theft by employees, consultants, and contractors Includes immunity from liability for confidential disclosure of a trade secret to the government or in a court filing Permits an individual who files a lawsuit against an employer for retaliation to disclose a trade secret to his or her attorney or in a court proceeding 19
Key Provisions Affecting Employers (cont d) Employers must provide notice of immunity in contracts and agreements to be awarded exemplary damages and attorney fees from employees engaging in trade secret theft 20
New Remedies Against Employee Theft of Trade Secrets Employers have a uniform federal remedy to seek redress when employees steal trade secrets Allows for the recovery of damages, injunctive relief, and ex parte seizures Covers domestic and international acts The DTSA does not pre-empt state law Non-competes Confidentiality 21
New Remedies Against Employee Theft of Trade Secrets (cont d) Employees is broadly defined and includes employees and any individual performing work as a contractor or consultant for an employer 22
Whistleblower Immunities Exception to Prohibited Disclosures The DTSA provides immunity from civil or criminal liability under any Federal or State trade secret law for disclosing a trade secret in limited circumstances: In confidence to a government official or an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or In a complaint or other document filed under seal in a lawsuit or other proceeding 23
Whistleblower Immunities Exception to Prohibited Disclosures (cont d) An individual who files a lawsuit against an employer for retaliation for reporting a suspected violation of law may disclose a trade secret to his or her attorney and use the secret in the court proceeding if the individual: Files any document containing the trade secret under seal, and Does not disclose the trade secret, except pursuant to court order 24
New Whistleblower Notice Requirements An employer must satisfy notice requirements to receive punitive damages and attorney fees Employers must give notice of the whistleblower immunities to employees, consultants, and contractors in any contract or agreement entered into after May 11, 2016 that governs the use of trade secrets or other confidential information 25
Two options: How to Provide Notice Cross-reference to a policy document provided to the employee that sets forth the employer s reporting policy for a suspected violation of law OR Separate notice The DTSA does not provide specific language that must be used 26
Steps Employers Should Take Steven M. Gutierrez Holland and Hart 27
Key Take-Aways for Employers Include the required whistleblower/immunity notice to employees in all relevant employment, contractor, and consultant agreements to ensure that punitive damages and attorney fees can be recovered E.g. employment agreements, severance agreements, non-compete and non-solicitation agreements, confidentiality agreements Do you re-open current agreements to add new provisions? How far down the supply chain should you go? 28
Key Take-Aways for Employers (cont d) Determine whether your current whistleblower policy meets the DTSA notice requirements Include in-compliance and whistleblower training for employees, contractors, and consultants 29
Failure to Include Immunity Notice In an action against an employee to whom notice was not provided: No exemplary damages No attorney fees 30
Expanded Employee Definition For immunity notice, DTSA defines employee as any individual performing work as a contractor or consultant for an employer 31
Add to Which Agreements? Non-disclosure agreements Trade secret agreements Confidentiality agreements Non-competes that have a confidentiality provision Assignment of inventions agreements Separation/severance agreements Settlement agreements 32
Potential Cost/Benefit Analysis Immunity notice is not mandatory but it negates recovery of double damages and fees It arguably highlights the employee s ability to disclose trade secrets when whistleblowing Likely want to add to all agreements signed at the beginning of employment For separation/severance agreements, consider whether highlighting the whistleblower procedure is problematic 33
Update Venue and Choice of Law Make sure the venue and choice of law clauses in agreements permit for resolution under the DTSA in federal court 34
If In Non-UTSA States Employers with operations that haven t passed UTSA (e.g., NY and MA) need to ensure that definitions of trade secrets, misappropriations, and other defined terms include DTSA definitions 35
New Agreements Only DTSA whistleblower immunity notice provision applies only to contracts entered into or updated after the enactment (May 11, 2016) 36
Additional Considerations for Employers Will employer s likelihood/tolerance for enforcing trade secret protections increase due to federal court option? Revisit protections used to maintain confidentiality of trade secrets Take whistleblower claims seriously - try to resolve internally before trade secrets need to be revealed to outside attorneys or in court 37
Consider Ex Parte Remedies Civil seizure available only in extraordinary circumstances Based on affidavit or verified complaint Allows for seizure of property necessary to prevent the dissemination of trade secret Computers, external drives, etc. 38
Carrying Out Seizure Order Federal law enforcement officer shall serve seizure order and obtain property Court may allow state or local law enforcement to participate Applicant (or its agent) NOT permitted to participate Technical expert not affiliated with either party may participate at the request of law enforcement 39
Motion for Encryption A party or person with an interest in the property seized may move to encrypt any material seized Motion may be made at any time May be heard ex parte 40
Damages for Wrongful Seizure A person damaged by a wrongful or excessive seizure may seek damages Against the applicant of the order under which seizure was made 41
How Does the DTSA Affect Multi-State Employers? Daniel H. Handman Hirschfeld Kraemer 42
Most Important Provision for Multi-State Employers Section 2(f): Nothing in the [DTSA] shall be construed... to preempt any other provision of law. WHAT DOES THAT MEAN? YOU HAVE A CHOICE. But, do you really want to exercise it? 43
What If State Law Is More Favorable? Employers can still seek remedies in state court on a state law claim Most states have adopted some form of the Uniform Trade Secrets Act (except NY and MA.), so there is already a lot of uniformity among states But, there are some differences among states 44
What If State Law Is More Favorable? Examples: Inevitable disclosure doctrine (i.e., no need to prove actual misappropriation Loose definition of a trade secret (some states do not limit trade secrets to information that is not readily ascertainable ) 45
What If State Law Is More Favorable? Examples (cont d): Damages: Some states allow for significant damages and penalties Attorney s Fees/Expert costs: Some states have generous fee-shifting provisions 46
What If the DTSA Is More Favorable? Examples: Allows for immediate, ex parte injunctive relief Three-year SOL No prerequisites to conducting discovery (Cal. law must allege trade secret with particularity before conducting discovery) Civil seizure provisions 47
Yes. Can Employers Bring a Federal and State Claim? A federal court has original jurisdiction over DTSA claims and can exercise supplemental jurisdiction over state law claims. UTSA pre-empts other civil claims based on trade secret misappropriation. DTSA does not. 48
No. Does DTSA Allow for Non-Competes in States that Are Hostile to Them? Under DTSA, courts cannot issue an injunction that: 1.Prevents a person from entering into an employment relationship; or 2.Conflicts with state law re: restraints on the practice of a lawful profession, trade, or business. 49
But Does DTSA Allow for Non-Competes in States that Are Hostile to Them? A court can issue an injunction imposing conditions on employment as long as there is evidence of threatened misappropriation (i.e., not merely the information the person knows) Are employees really going to threaten misappropriation? 50
Contact Our Speakers for More Information David S. Fortney FortneyScott Washington, DC dfortney@fortneyscott.com Steven M. Gutierrez Holland and Hart Denver, CO sgutierrez@hollandhart.com Daniel H. Handman Hirschfeld Kraemer Santa Monica, CA dhandman@hkemploymentlaw.com Scott A. Holt Young Conaway Stargatt & Taylor Wilmington, DE sholt@ycst.com Susan T. Spradley Gray-Robinson Orlando, FL susan.spradley@gray-robinson.com 51
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