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The Defend Trade Secrets Act of 2016:What You Need To Know
Claire Laporte
© 2016 Foley Hoag LLP. All Rights Reserved. 2
Agenda Background: trade secrets and the shift away from patents The DTSA’s new private right of action
Basic provisions and the change in existing law “Reverse preemption” New seizure remedy Whistleblower protections and the need to update contracts
Other best practices under the new structure
© 2016 Foley Hoag LLP. All Rights Reserved. 3
Trade Secrets: the Basics
Restatement of Torts, § 757 / Common Law Restatement of Unfair Competition, 3d Uniform Trade Secrets Act (UTSA) Other state Statutes Federal: EEA, FOIA, ITC International treaties: TRIPS, TPP
No registration system
© 2016 Foley Hoag LLP. All Rights Reserved. 4
Trade Secrets Find Their Way Into Court
© 2016 Foley Hoag LLP. All Rights Reserved. 5
The Shift from Patents to Trade Secrets Turmoil in the patent world “Troll” litigation in Eastern
District of Texas Total cost of patent litigation
leaps into the high 7 figures
© 2016 Foley Hoag LLP. All Rights Reserved. 6
The Shift from Patents to Trade Secrets Difficulty of launching troll-type
litigation about trade secrets New emphasis on trade secrets
But many technologies can’t be protected using trade secrets
And trade secrets are different!
© 2016 Foley Hoag LLP. All Rights Reserved. 7
Patents or Trade Secrets?
PATENTS TRADE SECRETS
Require public disclosure Destroyed by public disclosure
Term: 20 years Term: as long as you keep the secret
Can protect reverse-engineerable items
No protection against reverse engineering
Obtained by prosecution; maintained by payments
Can be labor-intensive to maintain; requires reasonable efforts to keep secret
Exclusive: no unlicensed use permitted
Non-exclusive: use prohibited only if it results from misappropriation
Must be non-obvious, adequately described, and useful
Must acquire value from not being generally known
© 2016 Foley Hoag LLP. All Rights Reserved. 8
Agenda Background: trade secrets and the shift away from patents The DTSA’s new private right of action
Basic provisions and the change in existing law “Reverse preemption” New seizure remedy Whistleblower protections and the need to update contracts
Other best practices under the new structure
© 2016 Foley Hoag LLP. All Rights Reserved. 9
New Private Right of Action
Legislation flew through otherwise gridlocked Congress Commerce Clause-based: applies only to trade secrets
“related to a product or service used in, or intended for use in, in interstate or foreign commerce”
Jurisdiction in either federal or state court Diversity no longer needed to bring a trade secret action in federal
courtBut seizure provisions are effectively federal only
No preemption of state law Potential impact on inevitable disclosure doctrine
© 2016 Foley Hoag LLP. All Rights Reserved. 10
Employee Mobility and “Reverse Preemption”
Injunctions under the new law do not restrict employee mobility An injunction may not prevent a person from entering into an
employment relationship Conditions placed on employment “shall be based on evidence of
threatened misappropriation and not merely on the information the person knows”
Injunctions may not “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business”
© 2016 Foley Hoag LLP. All Rights Reserved. 11
Ex Parte Seizure Process
Available only “in extraordinary circumstances” Purpose: “to prevent the propagation or dissemination of the
trade secret”But apparently not to prevent the misappropriation itself
Requirements include typical elements for injunctive relief, plus: Injunctive relief otherwise available must be
insufficient Application must show that if notice were
provided, the evidence would be destroyed, moved, hidden, or otherwise made inaccessible to the court
Relief only available if applicant has not publicized the requested seizure
© 2016 Foley Hoag LLP. All Rights Reserved. 12
Seizure: the Mechanics Seizure to be made by “Federal law enforcement officer” Order must “provide for the narrowest seizure of property
necessary to achieve the purpose of this paragraph” Order must minimize interruption of:
Business operations of 3d parties Legitimate business operations of target
Court must protect the target “from publicity, by or at the behest of the person obtaining the order, about such order and any seizure under such order.”
Seized materials to be in court custody Special master may be appointed to sift through the
material Damages for wrongful seizure available
© 2016 Foley Hoag LLP. All Rights Reserved. 13
Giving Notice to Whistleblowers
“IMMUNITY.—An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that … is made … in confidence to a … government official … or to an attorney … solely for the purpose of reporting or investigating a suspected violation of law”; trade secrets may also be used in anti-retaliation proceedings relating to a “suspected violation of law ….”
“NOTICE…. An employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”
© 2016 Foley Hoag LLP. All Rights Reserved. 14
Whistleblower Provisions
Failure to provide notice of whistleblower immunity results in loss of exemplary damages and attorney fees.Likely result: continuing reliance on state law causes of actionNote “optional” notice theory
Broad definition of “employee”: “For purposes of this subsection, the term ‘employee’ includes any individual performing work as a contractor or consultant for an employer.”
© 2016 Foley Hoag LLP. All Rights Reserved. 15
Contractors and Consultants
Statute confers immunity on “an individual” who blows the whistle.
Mohamad v. Palestinian Authority, 132 S.Ct. 1702, 1707 (2012) (the term “individual” in the U.S. Code must be construed to mean natural persons alone, and not organizational entities, absent evidence of contrary Congressional intent)
Thus, probably no requirement to provide notice in contracts with entities (firms, companies, professional associations, partnerships)
© 2016 Foley Hoag LLP. All Rights Reserved. 16
Agenda Background: trade secrets and the shift away from patents The DTSA’s new private right of action
Basic provisions and the change in existing law “Reverse preemption” New seizure remedy Whistleblower protections and the need to update contracts
Other best practices under the new structure
© 2016 Foley Hoag LLP. All Rights Reserved. 17
Action Plan: Contract Review (1) Update employee/consultant manuals/agreements:
Provide notice of whistleblower immunity Check confidentiality provisions: they matter Check invention assignment provisions to be sure they cover:
Know-how Financial, business, scientific, technical, economic, or engineering information Patterns, plans, compilations, program devices, formulas, designs, prototypes, methods,
techniques, processes, procedures, programs, or codesAny other items likely to be protectable as trade secrets
Consider jurisdiction and forum provisions with foreign contractors and consultants
© 2016 Foley Hoag LLP. All Rights Reserved. 18
Action Plan: Contract Review (2)
Review and plan for licenses, collaborations, and JVs: Provide for reasonable measures to safeguard trade secrets Require counterparties to provide notice of whistleblower immunity to
their own employees/consultants/contractors Be clear who “owns” trade secrets developed in JVs, collaborations,
and other agreements involving information flowsNote that a rogue co-owner can destroy the entire value of the trade secret – trade
secrets are more vulnerable than patents
Consider drafting provisions to determine how information will be protected: patent or trade secret?Be sure nobody files for a patent on something that is better protected as a trade
secret!
© 2016 Foley Hoag LLP. All Rights Reserved. 19
Action Plan: Contract Review (3)
Be careful during financing and M&A discussions and other non-collaborative information exchange situations: Be sure that there are adequate NDAs in place Consider jurisdiction and forum provisions with foreign counterparties
© 2016 Foley Hoag LLP. All Rights Reserved. 20
Proving Need for Seizure
Proving need for seizure will involve precautionary steps that should be taken anyway: Employee/consultant/contractor NDA and information assignment
agreements Need-to-know access for sensitive information Routine monitoring of computer account access anomalies Analytics for computer use by departing or recently departed
employees Safeguard physical facility spaces Label physical items when possible
The Defend Trade Secrets Act of 2016:What You Need To Know
Claire Laporte