Protecting company trade secrets is something you don’t hear about much in the world of HR. But a new federal law, created by Congress and signed by President Obama, has brought HR to the forefront concerning trade secrets, according to legal experts.
The President signed the Defend Trade Secrets Act of 2016 (DTSA) into law on May 11, and it provides a new federal court civil remedy for acts of trade secret misappropriation.
Trade secret theft by employees is a significant part of the overall problem, according to Dallas-based Jackie Johnson, co-chair of the Unfair Competition and Trade Secrets Practice Group at Littler Mendelson.
For example, the cost of intellectual property (trade secrets are a subset) theft to U.S. businesses has been estimated at more than $300 billion a year in a 2013 report by the Commission on the Theft of American Intellectual Property.
Johnson explains that it’s generally much easier for an employee with access to trade secrets in the course of employment to take and use a company’s trade secrets for unauthorized purposes than it is for an outside party to do so.
In fact, a 2013 survey from Symantec, a data security provider, found 79% of employees leaving jobs in areas such as finance, sales and marketing exited toting data that belonged to their employer without permission. Worse, 56% of survey participants believed it was perfectly legal to use a competitor’s trade secrets.
Robert Milligan of Seyfarth Shaw, co-chair of the firm's Trade Secrets, Computer Fraud & Non-Competes practice group, called the President’s signing of the DSTA “a monumental day for the protection of trade secrets in the United States.”
He explained that the DTSA gives companies the ability to sue in federal court when their trade secrets are misappropriated, adding that HR leaders should immediately update their non-disclosure agreements so that employers can avail themselves of the full protections of the new law.
Milligan said that the DTSA also demonstrates that trade secrets are extremely significant to US companies. “The livelihood of many businesses depends upon these important intellectual property assets,” he says. “With the new law, they are put in their rightful place among patents, trademarks and copyrights. Companies now have access to the federal courts to protect these valuable assets.”
In Milligan’s view, trade secrets will only grow in importance as a result of the new law. He says as companies have begun to move from seeking patent protection, the DTSA will help fill that void by providing a property right that can be protected in federal court.
Littler’s Johnson says employers now have the ability to have material seized and secured by the court, as the new law offers protection against destruction by the possessing party—a mechanism generally not available in state court under state trade secret acts.
She also offered several steps for HR and employers in taking advantage of the new options provided under the DTSA, including:
- Examining contracts and confidential information protection policies with employees and independent contractors to evaluate the need for notice language regarding the DTSA whistleblower and retaliation claimant protections;
- Revisiting hiring and onboarding procedures to make sure that reasonable steps are being taken to avoid newly hired employees bringing trade secrets of a prior employer into the workplace or using them;
- Examining employee termination and exit processing procedures, to ensure appropriate steps are in place to secure the return of confidential and trade secret information that might be in a departing employee’s possession or control, and to identify criteria indicative of the possible need to pursue a seizure order.
Finally, companies may want to consider establishing an identification process. Such a process would flag high-priority trade secret information for protection that could require the pursuit of a seizure order by the employer if misappropriated.
“Despite certain drawbacks, the DTSA is a significant weapon in an employer’s arsenal to prevent unfair competition,” Johnson says.