Using the New Defend Trade Secrets Act to Protect Confidential Business Information

On May 11, 2016, President Obama signed into law the first federal trade secret law, the “Defend Trade Secrets Act of 2016” (DTSA), which is similar to the Uniform Trade Secret Act that many states have adopted, but also broadens available venue and remedies to protect trade secrets. (See “The New Federal Trade Secret Act and What It Means to Your Business,” published by NAMWOLF).

With this expansion, now is a good time to reassess what you can do to protect your company’s trade secrets. Implementing the following best practices will help to safeguard against trade secret misappropriation, as well as ensure you have the most available remedies available in the unfortunate event of misappropriation.

Best Practice No. 1:

Know what a trade secret is. Their definition varies from state to state. But in its most elementary sense, a trade secret is a company’s valuable information, not known by others, that the company reasonably tries to keep confidential. The most common examples are customer and supplier lists, marketing strategies, secret recipes, software, and formulas. To confirm what you believe to be a “trade secret” is indeed a legally protectable trade secret, you should review your state’s trade secret laws and the DTSA.

Best Practice No. 2:

Inventory your trade secrets. Maintaining and periodically updating your trade secret inventory lists is essential to protecting your trade secrets from disclosure. Having counsel directly involved in the inventory process can help safeguard against potential discoverability issues in future lawsuits.

Best Practice No. 3:

Keep trade secrets secret. Although an obvious practice, many companies unfortunately fail to implement this critical step and therefore lose trade secret protection. Common ways to maintain the secrecy of your trade secrets include: marking trade secret information with “confidential and proprietary”; limiting access to only those employees who must see the trade secrets; requiring a password to access the information; implementing policies regarding storage and disposal of trade secret information; and keeping trade secrets locked in separate cabinets.

Best Practice No. 4:

Use and update written confidentiality agreements. Have all employee and independent contractors or consultants execute confidentiality agreements that define your company’s trade secrets and explain the limitations on use of those trade secrets along with the penalties for violating the agreement. Include the same in personnel manuals. Depending on the jurisdiction, you may also consider having certain employees execute a non-compete or non-solicitation agreement (with limited exceptions, such agreements are not valid in California). If you make confidential information available to any third-parties (i.e., customers, suppliers, or business partners), require them first to sign non-disclosure agreements and limit their access to the greatest practicable extent. Be sure to update your confidentiality agreements as new laws that impact trade secrets become effective. For example, to preserve all available remedies under the DTSA, you must update your confidentiality agreements to provide employees, contractors, and consultants notice of the DTSA’s whistleblower and employee immunity provisions.

Best Practice No. 5:

Train employees and independent contractors regarding your trade secrets. Training should be given to all new employees, and periodically for other employees. Training should discuss what the company considers to be trade secrets and the company’s policies to maintain the secrecy of that information. We recommend documenting each training with signed acknowledgments, participation lists and/or certifications.

Best Practice No. 6:

Hold thorough exit interviews. Require exiting personnel to acknowledge in writing they have returned all confidential information in their possession (including any on personal electronic devices), and will continue to protect confidential information. If there is a non-compete or non- solicitation agreement in place, you may consider contacting the new employer and providing them with a copy of the employee’s confidentiality agreement; but you should consult with an employment attorney before doing so.

Best Practice No. 7:

Immediately protect your trade secrets for each employee separation. Promptly terminate a departing employee’s passwords and access to any building or location where proprietary information is kept. Ensure all personnel with access to your trade secrets take necessary steps to protect the information upon an employee’s separation. In particularly sensitive situations, you may wish to have technology specialists look for suspicious downloads or file copying by the departing employee, but only after consulting with employment counsel familiar with privacy laws.

Best Practice No. 8:

Create a misappropriation plan. Establish procedures with HR to ensure quick access to necessary information. Establish procedures with the IT department to make sure that a departing employee’s hard drives and emails are preserved and passwords are revoked. Having a strong relationship with counsel helps when seeking quick court relief, such as a temporary restraining order, for any misappropriation.

In the unfortunate event that a departing employee takes your trade secrets, you have many legal remedies. For instance, you can seek a court order to return, destroy or prevent use of your trade secret materials. Under the DTSA, you can also seek a seizure order to recover your trade secrets prior to giving notice of a lawsuit.

You may also be able to recover monetary damages and attorneys’ fees in appropriate circumstances. You should always consult counsel if you have any questions, want to update policies, procedures or agreements, or are concerned about misappropriation.

Amir A. Amini is Senior Counsel with Sanchez & Amador, LLP, with offices in Los Angeles and Oakland, California. Amir leads the firm’s business and real estate litigation team. His practice focuses on complex business litigation, including commercial contracts, fraud, defamation, unfair competition, and intellectual property disputes. For more info on Amir, click here.
Amber M. Grayhorse, Senior Counsel with Sanchez & Amador, LLP, has defended and counseled private and public employers for more than a decade. Her practice focuses on employment and complex business litigation involving a variety of claims, including harassment, discrimination, retaliation, employment torts, breach of contract, and related business torts. For more info on Amber, click here.
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