Monday, February 8, 2016

The "New" Defend Trade Secrets Act Gets an Important Revision

Congress is on the verge of agreeing on something.

While it may not be health care reform, a solution to illegal immigration, or taxes, it is agreement nonetheless. Count the little victories.

So what's the agreement? Landmark legislation affecting trade secret rights. The Defend Trade Secrets Act of 2016 is upon us, now voted favorably out of the Senate Judiciary Committee. There is no word yet on when the House of Representatives may consider the legislation or when a floor vote in the Senate may occur. But getting out of committee was a big deal.

The Judiciary Committee also approved two amendments to the DTSA, some of which are technical but one of which appears vitally important. In the proposed section on Remedies, the DTSA provides that a court may grant an injunction to prevent any actual or threatened misappropriation of a trade secret, provided that the injunction "does not prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows."

The language, offered in the way of a substitute to the original legislation appears to be a firm rebuke of the so-called "inevitable disclosure" doctrine, which has divided courts across the country. Most attorneys feel there is a fine line between threatened disclosure of a trade secret, and "inevitable" disclosure. In all likelihood, that fine line rests on some indicators of bad faith, which could include facts like misleading a former employer about future plans or deleting e-mails outside the ordinary course of business.

The inevitable disclosure doctrine is badly overused and serves a crutch for employers to bring anti-competitive lawsuits. In reality, the contours of the doctrine should be exceedingly narrow to begin with and the doctrine only should apply to a narrow slice of cases. It always should be the exception, not a default theory of misappropriation.

The presence of this limiting, substitute language could have a profound impact on how and whether employers use a federal statute. For those who seek to bring weak claims founded on the shaky inevitable disclosure doctrine, federal courts may not be so welcoming after all.

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