By Mark Fijman
Trade secret theft is estimated to cost American companies more than $300 billion a year. More than half of departing employees keep confidential information belonging to their former employers and 40 percent plan to use such misappropriated trade secrets in their new jobs, according to a recent survey by a security software company.
In today’s digital workplace, the technology that makes companies and employees more efficient also makes it easier than ever to steal trade secrets. Confidential information can be stolen using email, flash drives, smartphones and tablets, off-site “cloud” storage and unauthorized remote access to a company’s network.
On May 16, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA), allowing Mississippi companies – and businesses nationwide – to file suit in federal court to protect their trade secrets from unscrupulous former employees and dishonest business competitors. The law passed with strong bipartisan support in Congress. Prior to the enactment of the DTSA, companies were limited to seeking relief in state courts, where the law can vary from state-to-state.
The DTSA offers many of the same protections offered by the Mississippi Uniform Trade Secrets Act (MUTSA) but contains aggressive enforcement provisions, including court-ordered seizure to prevent the dissemination and use of stolen trade secrets. In allowing Mississippi companies to sue in federal court, the DTSA broadly describes trade secrets as:
All forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible …
To meet the test for a trade secret under the DTSA, the information must have economic value based on the fact it cannot be discovered by others through proper means, and reasonable efforts must have been taken to maintain the information’s secrecy.
Under the DTSA, companies victimized by trade secret theft can obtain injunctive relief in which the federal court will bar the misappropriating party from disseminating, using or benefiting from the stolen information. Other relief under the Act includes actual money damages, restitution, attorney fees, and exemplary or punitive damages of double the actual money damages.
DTSA vs. MUTSA
What strikingly distinguishes the DTSA from its Mississippi counterpart is that the DTSA provides that in appropriate circumstances, a federal district judge may “issue an order providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” What this means is a company that believes it is the victim of trade secret theft can petition the federal court to order federal marshals to enter the property of another individual or company to seize property that would allow the stolen trade secret to be improperly used or disclosed. Such a seizure would be allowed without any advance notice to the individual or company in possession of the allegedly misappropriated trade secrets.
This is a form of relief far beyond anything that would normally be permitted under MUTSA or that a state court judge would be likely to even consider ordering. The standard a federal court must follow before ordering such extraordinary relief is fairly stringent, and a hearing must be held within seven days.
However, companies should carefully weigh the pros and cons of exercising this court-ordered seizure option, because a poorly advised decision could leave the company paying the price. DTSA provides that victims of “wrongful or excessive seizure” may sue to recover actual money damages and attorney’s fees.
Mississippi businesses need to be particularly aware of the whistleblower protections of the DTSA and revise their policies sooner rather than later, even if they currently have no issues involving trade theft. The DTSA contains an immunity provision to protect individuals from criminal or civil liability for disclosing a trade secret if it is made in confidence to a government official or to an attorney for the purpose of reporting a violation of law.
Employer Responsibility to Notify
The DTSA’s whistleblower protection places an affirmative duty on employers to provide employees notice of the new immunity provision in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Failure to provide this notice will prevent a company from being able to recover exemplary damages and attorneys’ fees in any lawsuit brought under the DTSA. In anticipation of the future need to exercise rights under the DTSA, employers should immediately begin integrating such language into company documents such as, but not limited to, employment agreements, independent contractor agreements, employee handbooks, offer letters, non-compete/non-solicitation agreements, non-disclosure/confidentiality agreements, invention and assignment agreements, and return of property agreements.
The DTSA does not pre-empt existing state law trade secret protections, such as MUTSA, so depending on the circumstances of the case and the advice of legal counsel, businesses still retain the option of seeking relief in state court. For example, because of a provision in the DTSA that prohibits injunctions that “prevent a person from entering into an employment relationship,” Mississippi state courts may still be the best venue for seeking enforcement of non-compete/non-solicitation agreements.
While the DTSA is good news for business, an ounce of trade secret theft prevention is worth a pound of trade secret litigation. Companies should conduct regular trade secret audits. This includes identifying your company’s trade secrets, assessing their value and determining the ways such information could be subject to misappropriation. Additional steps include, but are not limited to, restricting the levels of access to trade secrets to only those employees with a legitimate need, having a “Bring Your Own Device” policy in place and, as appropriate, employee non-compete and confidentiality agreements.
To avoid being on the wrong side of trade secret theft litigation, another option is to require new employees to execute an acknowledgment that they have been instructed not to use the trade secrets of their former employer and that any such use is outside the scope of their employment relationship with your company.
Mark Fijman is a labor and employment attorney who focuses on taking legal action against former employees for misappropriation and misuse of company trade secrets. He serves as counsel in Phelps Dunbar LLP’s Jackson office.
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