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New Defend Trade Secrets Act Exposes Employers to Competitors’ Broad Seizure Remedies

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The Defend Trade Secrets Act’s broad protection for company trade secrets imposes substantial new burdens on employers to make sure that not only their employees but also their contractors do not expose employers to the broad seizure powers that competitors may use against defecting employees and contractors.

Signed into law on May 11, the Act allows "trade secret owners" (i.e., companies that have a protectable interest in certain business information) to bring lawsuits in federal court to protect their intellectual property. The law also grants these owners the right to obtain seizure orders for any stolen information. But in addition to its benefits, the law introduces new burdens for employers.

Employers will need to consider the impact of the law on virtually everyone doing work for their companies because the law defines "employee" so broadly. The definition includes independent contractors: "any individual performing work as a contractor or consultant for an employer."  Inclusion of independent contractors in the definition means that employer compliance with the law will require review and possible revision not only of employee policies, handbooks, and employment agreements, but also of any policies or contracts for work applicable to independent contractors and consultants.

The introduction of the right to seizure orders means that companies will need to proactively guard against the removal by employees, independent contractors, and consultants of trade-secret information from the control or possession of their previous employers. Failing to do so could result in a company being subject to an order that directs the U.S. Marshal to pack away the company's servers, desktops, and portable electronic devices. Companies hiring for the positions of  IT specialist, software engineer, and data analyst, and others regularly exposed to trade secrets, should implement additional precautionary measures to safeguard against broad seizure orders and protect themselves and their employees and contractors from litigation.

Such precautionary measures can include creating a new trade-secret policy and distributing it to the current workforce, revising the employee handbook to incorporate a new trade-secret policy, revising new-hire paperwork with a clear notice that individuals are not required or expected to take trade-secret or other proprietary information from their previous employer, incorporating into the new-hire documents a certification that the individual acknowledges and has complied with the employer's request to not take trade-secret information from previous employment, and making a mandatory sweep of electronic devices for proprietary information before the new hire's start date.

The new law also grants immunity to any employee, contractor, or consultant who discloses trade secrets to federal or state law enforcement officials or to an attorney for the purpose of reporting or investigating a suspected violation. It is the employer's responsibility to provide written notice to employees, independent contractors, and consultants of this immunity. Because the law applies to conduct performed on or after May 11, 2016, employers should distribute this notice promptly.

Trade-secret protection is more important than ever for the constantly shifting target of innovation. We predict a steep rise in federal court civil lawsuits under the new law. The first cases have already been filed. To stay out of the fray, employers should seek legal advice now on how to comply from both the human resources perspective and the intellectual property perspective.