This presentation discusses new federal legislation to protect trade secrets and provides concrete, pragmatic advice about how to respond to this new development.

1. The Defend Trade Secrets Act of 2016:
What You Need To Know
Claire Laporte

2. © 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

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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

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Trade Secrets Find Their Way Into Court

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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

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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!

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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

8. © 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

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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
court
But seizure provisions are effectively federal only
No preemption of state law
 Potential impact on inevitable disclosure doctrine

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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”

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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

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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

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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.”

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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 action
Note “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.”

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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)

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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

17. © 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 codes
Any other items likely to be protectable as trade secrets
 Consider jurisdiction and forum provisions with foreign contractors and
consultants

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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 flows
Note 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!

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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

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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

21. The Defend Trade Secrets Act of 2016:
What You Need To Know
Claire Laporte