ACTION ITEM FOR EMPLOYERS: All provisions of trade secret and confidentiality covenants contained in employee agreements must be revised to provide a notice concerning the whistle-blower provision of the Defend Trade Secret Act, if the employer wants to enjoy the benefits of collecting attorney’s fees and exemplary damages in a cause of action against an employee under this new federal statute.
When a business wants to protect its trade secrets in North Carolina, it can rely on two separate causes of action now. One under North Carolina law and one under federal law. Supplementing the North Carolina Trade Secrets Protection Act, is the newly enacted Defend Trade Secrets Act of 2016, codified under Article 18 of the United States Code, Section 1838. It provides a private cause of action in federal court for a wronged person whose trade secrets have been misappropriated. It also allows for a civil seizure remedy to prevent the dissemination of information from the wrongful third party until there is a determination on the merits by the federal court. There is a three year statute of limitations from the date of reasonable discovery.
The Defend Trade Secrets Act provides a broad definition of “trade secret”. Specifically, trade secret is defined, under Title 18, Section 1832 of the United States Code, as:
“all 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, another person who can obtain economic value from the disclosure or use of the information.”
18 USC §1839(3). The term “misappropriate” is also defined to allow a fairly broad swath of activities to constitute unlawful conduct under 18 U.S. Code §1839(5). but does not include reverse engineering.
The greatest advantages under the federal Defend Trade Secrets Act is in the remedies it allows. In addition to the civil seizure remedy mentioned above along with related injunctive relief, it allows compensatory and exemplary damages, and attorneys fees. The plaintiff can recover compensatory damages for actual loss and unjust enrichment, and exemplary damages where the defendant “willfully and maliciously misappropriated” the trade secret. Finally, attorney’s fees can be recovered when exemplary damages are awarded by the Court. Exemplary damages and attorney’s fees may only be collected where prior written notice is given to employees that they enjoy such whistle-blower rights, as described below.
Finally, employees may disclose trade secrets under certain circumstances. The Defend Trade Secrets Act has a whistle-blower provision that prevents retaliation or a civil action against an employee who reports the misappropriate of his/her employer under the Dodd-Frank Act or other relevant statute to a governmental agency, or under court seal in an action for employment retaliation. While North Carolina’s statute has many of the same provisions as the new federal statute, including the recovery of attorney’s fees and punitive damages, having a federal venue to enforce the civil seizure provisions, try the case, and collect damages is a substantial advantage to a North Carolina business with an out-of-state defendant.
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