Abstract
Compiled and written by Greenblum & Bernstein PLC
A US intellectual property law firm which provides a full range of services in IP-related matters across all industries, including the biotech and pharmaceutical industries, including:
Inter Partes Review (IPR) and Post Grant Review (PGR)
Abbreviated new drug applications (ANDAs) and Notice Letters
Patent and trademark litigation
Patent drafting and prosecution
Patent infringement and validity opinions
Patent reexamination proceedings and interferences
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This section is intended to be a synopsis of recent developments and is not intended to be exhaustive. If any issue is referred to in this section is to be relied upon, specific advice should be sought. Please contact:
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“New Federal Trade Secret Legislation—The “Defend Trade Secrets Act””
Associate, Greenblum & Bernstein, PLC
The Defend Trade Secrets Act (DTSA), signed into law on 11 May 2016, creates a federal civil cause of action for trade secret misappropriation. Prior to enactment of the DTSA, trade secret plaintiffs were required to enforce theirs rights under state law. Although most states already have adopted versions of the Uniform Trade Secrets Act (UTSA), the definition of a trade secret and conduct constituting trade secret misappropriation varies from state to state. While the DTSA does not replace the various state trade secret laws, it provides a uniform federal system for litigation of trade secret misappropriation/theft as an additional cause of action.
Sections of the act are intended to provide procedural protections for “whistleblowers” whose disclosure efforts may be otherwise impeded by an inability to provide authorities with confidential information. The Act requires employers to notify employees of whistleblower immunity provisions in order to avail themselves of the full relief under the statute and provides certain protections for those wrongly accused by “whistleblowers” of engaging in illegal conduct.
Because of the importance of trade secrets in the pharmaceutical industry, generic companies should have an understanding of the policy behind, and impact of, the DTSA.
DTSA overview
The DTSA provides that “an owner of a trade secret that is misappropriated may bring a civil action under the Act if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”
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The DTSA defines trade secrets as: [A]ll forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if— (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.
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The DTSA’s definition of trade secret is broader than most state statutory definitions which limit trade secrets to formulas, patterns, compilations, programs, devices, methods, techniques, and processes.
“Misappropriation” also now has a definition that includes the acquisition of a trade secret with actual or constructive knowledge by improper means. While “improper means” includes theft, breach of a duty to maintain secrecy and espionage, it does not include reverse engineering, independent derivation, or any other lawful means of acquisition.
The DTSA enables plaintiffs to seek an ex parte seizure order, permitting an aggrieved party to seek relief from the court to seize misappropriated trade secrets without providing prior notice to the alleged wrongdoer. A seizure order may only be issued in “extraordinary circumstances” after a plaintiff establishes that other remedies, including an injunction, would be inadequate. To address concerns about abuse of seizure orders, the DTSA permits defendants to seek damages for a wrongful seizure.
In addition to issuance of an ex parte seizure order in extraordinary circumstances, the DTSA provides that a court may grant an injunction to prevent any actual or threatened misappropriation and/or award monetary damages. Further, the court may grant either (1) “damages for actual loss caused by the misappropriation of the trade secret” and any additional “unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual lost” or (2) “a reasonable royalty for the misappropriation's unauthorized disclosure or use of the trade secret.” 3 The court may also award exemplary damages (up to double damages) and reasonable attorney's fees.
Whistleblower protections
The DTSA provides for civil and criminal immunity to employees who disclose trade secrets in two circumstances: (1) in a document filed under seal in a judicial proceeding or (2) for disclosures made in confidence to a government official, or to an attorney, and “solely for the purpose of reporting or investigating a suspected violation of the law.” 4 Further, where an individual files a lawsuit for retaliation by an employer for reporting a suspected violation of law, the DTSA permits the individual to disclose trade secrets to the individual’s attorney and to use the secrets in court proceedings (as long as disclosure is made under seal and pursuant to a court order).
Notice provision
In order to be eligible to recover exemplary damages and/or attorney’s fees for misappropriated trade secrets by an employee an employer must provide notice of the aforementioned employee immunity provisions provided by the DTSA. Notice to an employee of his or her immunity rights must be provided “in any contract or agreement with an employee that governs the use of trade secret or other confidential information,” or by “cross-reference to a policy document provided to the employee …” 5
An “employee” includes any individual performing work on behalf of the employer, including contractors or consultants. 6
In order for a generic company to avail themselves of the full relief under the statute, it is necessary to add notice of the DTSA immunity provisions to any new agreements with employees, contractors, or consultants that govern the use of a trade secret or other confidential information, including but not limited to, employment contracts, consulting agreements, and confidential disclosure agreements.
The paragraph below is a sample notice provision, which adopts the immunity language from the statute: 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 Federal, State, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law. 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 a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order.
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Additionally, employers may want to consider also including a notice that the employer is entitled to enhanced damages and reasonable attorney’s fees under the DTSA for any willful misappropriation of its trade secrets by an employee.
Take-aways
The DTSA provides a uniform federal system for litigation of trade secret misappropriation or theft as an additional cause of action to existing state law claims. Additionally, sections of the DTSA are intended to provide procedural protections for “whistleblowers” whose disclosure efforts may be otherwise impeded by an inability to provide authorities with confidential information.
In light of the DTSA’s notice requirement, employers should consider revising their trade secret and confidential information policies to include the DTSA's immunity provision. Employers should also provide notice of the DTSA's immunity provision in all new employment agreements. Finally, employers may consider revising state court forum-selection clauses in employment agreements to take advantage of the benefits of the DTSA.