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Defend Trade Secrets Act Expands Protections of Employers' Proprietary Information

By: Benton Williams

With the passage of the Defend Trade Secrets Act (“DTSA”) on May 11, 2016, businesses finally hold greater protections when guarding against the danger posed by disloyal employees.[1]  Specifically, the DTSA provides employers with a federal cause of action against current and former employees for trade secret misappropriation.[2] In several instances, courts have defined trade secrets to include customized customer lists and databases.[3] The DTSA permits successful plaintiffs to recover, inter alia, actual and exemplary damages, attorney fees, as well as reasonable royalty payments.[4] It is important to note that the statute remains in its infancy, and the body of federal jurisprudence applying the DTSA continues to develop and evolve.[5]

The DTSA also allows an employer to seek and obtain injunctive relief prohibiting current or former employees from utilizing trade secrets to compete or otherwise harm the employer’s economic interests.[6] In rare instances, the statute allows for the ex parte seizure of a defendant’s property to prevent the dissemination of the trade secret that is the subject of the litigation.[7]

For example, in Henry Schein, Inc. v. Cook, a federal district court issued a temporary restraining order againstr the former employee of a marketing company.[8] The plaintiff, a company that marketed and sold healthcare equipment hired Jennifer Cook as a field sales consultant in 2005.[9] Ms. Cook entered into a Confidentiality and Non-Solicitation Agreement as part of her employment with plaintiff, and received confidential and proprietary information about the plaintiff’s customers—including customer lists, price quotes, and other customer-related reports.[10] Before Ms. Cook resigned in May of 2016, she secretly emailed the data to her personal email account in order to later compete with the plaintiff for the same customers.[11] The plaintiff subsequently filed suit against Ms. Cook, alleging, inter alia, misappropriation of the plaintiff’s trade secrets under both the DTSA and California state law.[12] Granting the plaintiff’s request, the district court issued a temporary restraining order prohibiting the former employee and anyone acting in concert with her from soliciting business from the plaintiff’s customers.[13]

The Defend Trade Secrets Act does not eliminate or usurp the various rights provided by state trade secret laws, but provides the key for employers and businesses to access federal courts when their proprietary information has been misappropriated.[14] The passage of this new statute is of great significance to employers and has expanded the body of intellectual property rights.

 


[1] 18 U.S.C. 1836, et seq.

[2] 18 U.S.C. 1836(b)(1).

[3] See, e.g., Henry Schein, Inc. v. Cook, 191 F.Supp.3d 1072, 1077 (N.D. Cal. June 10, 2016)) (“Customer information such as sales history and customer needs and preferences constitute trade secrets.”).

[4] 18 U.S.C. 1836(b)(3)(B).

[5] See, e.g., Earthbound Corp., et al. v. MiTek USA, Inc., et al., 2016 WL 4418013 (W.D. Wash. Aug. 19, 2016)(Martinez, C.J.) (granting a TRO requiring defendants to turn over to a neutral third-party expert all flash drives, SD cards, cell phones, and other external devices for forensic imaging).

[6] Id.

[7] See OOO Brunswick Rail Management, et al. v. Sultanov, 2017 WL 67119 *2 (N.D.Cal. Jan. 6, 2017) (citing 18 U.S.C. 1836(b)(2)(A)(i)).

[8] Id. at 1072.

[9] Id. at 1075.

[10] Id.

[11] Id.

[12] Id. at 1076-77.

[13] Id. at 1079-80.

[14] 28 No. 7 Intell. Prop. & Tech. L.J. 3 (2016).

 


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