Last Wednesday, President Obama signed the Defend Trade Secrets Act into law. The law allows employers to sue ex-employees and other individuals whom they believe have stolen trade secrets in federal court. As explained in more detail below, the law may require employers to revise non-compete agreements and employee handbooks.
A trade secret is a secret formula or process that a business uses to create a product. Perhaps the most famous trade secret is the formula for Coca-Cola. Coca-Cola has kept the recipe for its iconic drink secret for over a century. Predictably, trade secret theft is a major concern for companies, as their trade secrets are often one of their most valuable assets. Therefore, many employers require their employees to sign contracts stating that if they leave the company, they are not allowed to disclose any trade secret they learned as an employee.
Employers are already permitted to sue ex-employees, or anyone else, who steals a trade secret and uses it for his or her advantage. However, they may only do so under state trade secret laws. Each state has a different trade secret law, so it can be difficult for an employer to know what constitutes trade secret theft in one state as opposed to another. The Defend Trade Secrets Act seeks to make it easier for employers to protect their trade secrets by creating a law that applies uniformly throughout the entire country. It does not, however, preempt state trade secret laws, so an employer will need to consider whether to file suit under state or federal law.
The Act allows an employer to file a civil suit under the Economic Espionage Act for the theft of a trade secret. If an employer prevails in such a suit, it can obtain an injunction and recover damages. For egregious trade secret theft, these damages can be doubled, and an employer can also recover attorneys’ fees and even royalties. Under certain circumstances, an employer can seize property containing stolen trade secrets.
The law does provide immunity for any employee who reveals a trade secret while working with the government. So, an employee cannot be sued for trade secret theft if he or she discloses the trade secret in confidential discussions with the FBI.
The law requires employers to notify employees of this provision in any contract dealing with trade secrets or confidential information. As a result, employers will need to revise employment contracts and employee handbooks that contain provisions discussing trade secret disclosure. Employers should consult with an experienced attorney for advice in doing this.