Good News: New Federal Law Allows Businesses to Use Federal Courts to Redress Theft of Trade Secrets

The Defend Trade Secrets Act of 2016 (DTSA) allows parties to file suit in federal court even if the requirements of federal diversity jurisdiction are not met. As a result, most claims of misappropriation of trade secrets can now be filed in federal court (not the case previously). The federal court system has different procedures, different substantive law, and a different pool of judges, and may be a better option for a company whose trade secrets have been exposed to competitors, although state court remains the superior forum in some cases (such as when injunctive relief is paramount).
 
When a theft of trade secrets occurs, it is critical to respond quickly to prevent the trade secret from being disseminated further. So, the DTSA provides a new procedure for seizing property (such as a smartphone or laptop) that could imminently be used for disseminating trade secrets. Skillful use of this provision can help a company prevent additional exposure, and there is no comparable provision for seizure of this kind in Wisconsin state law.
 
Companies also need to know that the DTSA contains an unusual provision that can act as a trap for employers in enforcing restrictive covenants. The law provides protections for whistle-blowers who disclose trade secrets in the course of reporting violations of law to government officials, and requires employers to provide notice of this protection to employees who sign or update non-disclosure contracts, or other documents governing trade secrets, after the effective date of DTSA. An employer forfeits the ability to collect punitive damages or recover attorneys’ fees in action against employees who were not provided this notice. Employers should take heed of this requirement for all new and updated restrictive covenants that address trade secrets.
 
Any business considering a lawsuit to remedy misappropriation of trade secrets should discuss with experienced counsel the advantages and disadvantages of filing in state or federal court. Because of the DTSA, the victim of trade secret theft now has been both federal and state options for presenting its claims. Also, businesses may wish the advice of counsel for drafting (or redrafting) restrictive covenants in their employment contracts, to ensure that they pass muster under the new law.
 
If you have questions about pursuing a claim for theft of trade secrets, or updating non-disclosure agreements or other restrictive covenants to provide required notices, contact KMK Attorney Ryan M. Billings at rbillings@kmksc.com.